Home Insurance Rate Increases Moderate

NU Online News Service, June 2, 4:11 p.m.EDT?The cost of insuring homes is expected to rise by 2.8percent this year?the smallest boost in five years?rising onaverage to $608, the Insurance Information Institute said.[@@]

The New York-based group said the projected increase representsa substantial slowdown from 2003 when homeowners insurance costsrose by an estimated 7.4 percent. The estimated $608 average costfor homeowners is up $17 from $591 in 2003, the I.I.I. observed.I.I.I. said it based its figures on U.S. Bureau of Labor CPI data,company filings and trend projections.

Robert Hartwig, senior vice president and chief economist forthe I.I.I., said, "Small decreases in the frequency and cost ofclaims have helped improve insurer financial performance, resultingin a significant moderation in the cost of homeowners insurance in2004."

"With the cost of owning a home in America skyrocketing?saleprices, local property and school taxes, energy costs and, now,interests rates on the rise?the moderation in home insurance costscouldn't come at a better time for homeowners," he added.

Mr. Hartwig said some increase in the cost of homeownersinsurance reflects choices made by consumers themselves. "Over thepast several years, millions of families took advantage ofnear-record low interest rates, purchased larger homes, or madeadditions and improvements to their existing homes in recordnumbers," he said. "Bigger, newer and upgraded homes cost more toinsure simply because they're more expensive to rebuild or repair,"he added.

Approximately 41 million homeowners have added to or improvedtheir homes between 2001 and 2002. In 2001, the most recent yearfor which annual figures were available, an estimated $166 billionwas spent on home improvements, I.I.I. said.

Mr. Hartwig noted that homeowners need to make sure these addedcosts are reflected in their coverage or risk beingunderinsured.

"Insurers are now protecting more homes at greater value that atany time in history, helping propel the homeownership rate to anall-time record high of 68.3 percent in 2003?a figure substantiallyinfluenced by record numbers of minority buyers," Mr. Hartwigsaid.

I.I.I. noted that losses are the most important driver ofhomeowners insurance premiums. Between 1990 and 2002, home insurerspaid out, on average, $1.17 in losses and expenses for every $1they earned in premiums, according to the I.I.I.

Between 2000 and 2002 alone, homeowners insurers paid out anestimated $13.5 billion more in claims than they collected inpremiums, rivaling the $15.5 billion in insured losses fromHurricane Andrew?still the most expensive natural disaster inhistory in terms of insured losses.

By last year, I.I.I. said, results improved substantially, withinsurers paying out an estimated $1.03 for every dollar earned. Theorganization said that during the 1990s, the severity ofcatastrophes began to increase dramatically. Since 1990, insurershave paid out more than $120 billion in catastrophe-relatedlosses.

I.I.I. noted that last year the industry was hit with threebillion-dollar-plus disasters, including the California wildfires($2 billion) and Hurricane Isabel ($1.7 billion). Altogether,insured natural disaster losses totaled nearly $13 billion in 2003,the third-highest year on record. Mold-related claims had alsobecome a multibillion-dollar problem by 2002.

"Homeowners insurance rates in some parts of the countrycontinue to rise because of the extraordinary costs associated withpaying these catastrophic claims," Mr. Hartwig said. "In fact,virtually every part of the country is either at risk of or hasexperienced a billion-dollar disaster."

While the typical American homeowner will pay $608 for homeinsurance this year, rates do vary significantly from one part ofthe country to another. Mr. Hartwig pointed out that manyhomeowners in coastal regions vulnerable to devastating stormsassume a larger portion of the risk through higherdeductibles?usually a percentage of the insured value of thehome.

I.I.I. warned that underinsurance is a "chronic problem'' amonghomeowners.

Because a home is the most valuable asset most people will everown, I.I.I. said it is surprising that nearly two-thirds (64percent) of all homes in America are underinsured by an average of27 percent.

The institute said insurers are working to address this problemin a variety of ways, including calculating insured value bylooking at a home's individual components rather than thetraditional square-footage methods.

I.I.I. said insurers are also advising policyholders to purchaseinflation-guard endorsements on their policies, which automaticallyadjust the amount of insurance purchased each year to reflectincreases in local building and reconstruction costs.

To view a bar graph of home insurance rate increases, obtainadditional information on homeowners insurance or to view theI.I.I. announcement in full, access the I.I.I.'s website atwww.iii.org.
The I.I.I. is a nonprofit communications organization sponsored bythe property/casualty insurance industry.