The Texas FAIR (Fair Access to Insurance Requirements) Plan Association has filed a rate increase of 5%. After careful actuarial review, the filing has been allowed to be deemed approved by law. The new rates will take effect September 1, 2010. In 2009, the FAIR Plan Association filed a plan to increase rates by 20%. That rate filing was disapproved by the Commissioner, mostly because of unreasonable provisions regarding reinsurance costs, and the new 5% change is in lieu of the 20% previously filed.

Rationale for the rate change

• The FAIR Plan, a provider of last resort, has grown increasingly vulnerable to losses from both severe inland storms and hurricanes. The 5% rate change is a gradual step to solidify the Association’s financial situation.
• The Plan’s financial situation has deteriorated. Multiple hurricanes and/or other severe weather could produce a deficit of at least $30 million under certain scenarios, greater amounts under more severe conditions. The result could create stress on available funds and likely require the issuance of bonds to pay for losses in the following storm cycle.
• In addition to premium shock on FAIR Plan policyholders, a funding deficit would be shifted to non-FAIR Plan consumers. A funding deficit and a lack of funds for future storm seasons might result in adverse rate actions on consumers. First, FAIR Plan policyholders would likely be hit with severe premium shock. Second, Non-FAIR Plan consumers could ultimately pay for some of the deficit via surcharges on their insurance policies.
• Area of concern: Reliance on models to project the non-hurricane losses. The Commissioner has allowed rates for the FAIR Plan to be deemed approved by law, rather than direct approval of the Commissioner. One reason is the use of non-hurricane loss models. While the rate changes are reasonable based on other factors, the Department will instruct that future filings include an in depth explanation of differences in the models and actual experience.

The Texas FAIR Plan was established in 2002 to provide residential property insurance to qualified consumers who are having difficulty obtaining coverage on the open market. Access to the FAIR Plan is limited to consumers who have been rejected for homeowners’ coverage by at least two licensed insurance companies.   Consider this high risk home insurance.  The FAIR Plan’s current insured liability is over $12 billion dollars, most of that is in Tier 2 coastal communities.

For more information about the FAIR Plan visit: www.texasfairplan.org.