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No Real Reform

ELA
In which I cheat on the beach and vacation by thinking about insurance ...
I don’t really think it’s a great sign to be strolling down a sun-spangled, seaside street, chatting with a friend about the beautiful waterfront homes, but secretly thinking, “Ooo, I bet they’re in the FAIR Plan” and “Wow, I wonder what the deductible on that one is?”

However, given that homeowners insurance reform has recently experienced a surge in popularity in the Massachusetts Senate, I can’t be blamed for pondering the insurance implications of fireworks displays and speculating on the coverage options for the good people of the Outer Cape instead of simply lounging on the beach over the recent Fourth of July weekend.

The Senate has released a bill (see story, page one) that has spurred a bit of controversy in terms of eliminating guaranteed replacement cost coverage from the FAIR Plan. If consumers are hoping to reduce premiums and really feel that they are not as much at risk of hurricanes or other disasters, paying for limitless replacement costs could harm policyholders as much as help them. When the lawmakers, regulators and others that served on a special commission last year began to study homeowners insurance, they found that FAIR Plan insureds were buying far more protection than they needed. In fact, they heard from many consumers that didn’t want to pay for property damage coverage and simply wanted protection from lawsuits, hence the provision allowing a liability-only policy to be sold by the FAIR Plan.

Although the bill seems to respond to some consumer complaints, it appears to have forgotten a key portion of the issue – consumers just don’t understand insurance. The lawmakers working on the bill that originally emerged from the Joint Committee on Financial Services embraced consumer outreach and education as a goal. This most recent version of the bill seems aimed at tweaking the system in a less than productive fashion. At least one provision – freezing FAIR Plan rates until March 2009 – has an impact in theory only. Since the FAIR Plan likely won’t file another rate request until early fall and such hearings take quite a bit of time, rates would not likely even have an opportunity to change until long after March of next year. With only a few weeks left in the session, it seems as though no one – consumer or insurer – would be disappointed if this reform measure just faded away.

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