Homeowners Insurance Rates Rising

Posted on Thursday February, 2012
Filed in Uncategorized

Following a series of catastrophes, agents say insurers are raising pricing, changing coverage requirements.Homeowners insurance rates are on the rise this year, largely driven by losses from significant catastrophes in the U.S. over the past few years, independent insurance agents and an industry expert say.

Pricing is expected to climb 4.5% to 5% on average nationwide, but vary by location, says Robert Hartwig, president of the Insurance Information Institute. Hard-hit areas should expect greater increases, and those that have seen less damage will likely see smaller ones.

While 2011 was a record-breaking year for natural disasters in the U.S., Hartwig notes a multiyear sustained trend of substantial catastrophes is affecting homeowners pricing.

“We have not had an enormous number of hurricanes recently, but there have been very significant interior losses that have been occurring since 2008,” such as tornadoes, thunderstorms, large hails, straight-line wind and wildfires, he says.

Insurers don’t recoup past losses, but instead “factor in the long-term trend in losses into the rate,” Hartwig notes.

“That is a multiyear process, and it depends on whether the trend continues,” he adds.

In the Midwest, agents Dana Ramundt of Des Moines, Iowa, and Richard McKenney of Edina, Minn., say they’re seeing double-digit rate increases—15% to 20% or more—and changes to coverage requirements for homeowners insurance. Their states have experienced major hail and wind claims.

Ramundt, president of The Dana Company, says some companies are pushing percentage deductibles over flat deductibles, or are requiring higher flat deductibles. McKenney, principal of Advance Insurance Agency in Edina, Minn., says he’s seeing similar activity relative to wind and hail losses.

For new clients, some carriers are diluting coverage for replacing exterior home features, such as requiring actual cash value for roofs older than 15 years, McKenney adds.

“That’s kind of a really big departure for what we’re used to,” he says. “Most of us are used to companies saying we’re going to give you more coverage.”

In New Jersey, several companies are filing with the state for 5% to 10% increases, but those percentages can be higher under conditions such as coastal risks, says Jeanne Heisler, president of The Ronan Agency in Brick, N.J.

“We’re seeing that the losses are piling up and they are starting to increase rates,” she says, noting some companies are also increasing discount amounts, including no-loss discounts for long-term customers, to help offset any rate hikes.

Heisler, a coastal agent, says most of the wind and flood damage from Hurricane Irene in August 2011 occurred in the northern part of the state. Inland areas also saw damage caused by downed trees from an unusual snowstorm in October 2011.

Prior to that, major snowstorms and cold weather during the 2010-11 winter season led to homeowners claims, she adds.

It’s important to also pay attention to rates of carriers outside the independent agency system, says Ramundt, who saw early rate increases from a couple of his carriers at the end of 2010.

“Some of the direct companies lure people to the table,” he adds. “The public not being that well educated on insurance issues, they typically buy something that they don’t know is less than what they already had.”

Agents say they are taking a proactive approach with clients to discuss the matter with them in advance of their renewals.

Some clients are wondering why their premiums are going up when they haven’t made any claims. But in addition to helping clients understand that the issue is industry-wide, agents say they are working with clients to help them soften rate increases by making coverage adjustments that fit their needs and financial comfort level.

That includes increasing the size of the deductible for a policy, bundling home and auto coverage with the same company to receive a discount and insuring for adequate coverage to avoid penalties, agents say.

Ultimately, some clients may want their agent to shop for a better rate. But given the nature of the issue, Ramundt cautions that carriers with the lowest rate now could eventually have the highest rate.

“If everything [else with the insurer] is OK and good for the client, it makes no sense to make the move now when everybody else by 12 months from now will be there too,” he says.