Claims News Service, Dec. 15, 9:42 a.m. EST -- A study recently released by the Insurance Research Council finds that the public greatly overestimates the profitability of the homeowners' insurance market.
According to the study, most Americans believe that homeowners' insurers earn an average of $33 in profit for every $100 received in premiums. In reality, from 1995 through 2004, insurers averaged an underwriting loss of $9 per year for every $100 received in premiums.
Only recently has the market broken even or better. In 2003, insurers' profits equaled zero. In 2004, the homeowners' market moved into the black, with insurers earning between one and nine dollars in profit.
Perhaps unsurprisingly, people who experienced difficulty finding appropriate or affordable homeowners' insurance gave the highest -- and least accurate -- estimates. Nevertheless, the range of variation among all groups was narrow. Almost all subgroup averages fell within a $30 to $35 range.
"The American public is extremely uninformed about the profitability of homeowners' insurance," said Elizabeth A. Sprinkel, senior vice president of the IRC. "Despite years of headlines about homes being destroyed by natural catastrophes, the public underestimates the cost of claims by approximately half and greatly overestimates profits. These unrealistic ideas may limit their tolerance for homeowners' insurers' efforts to initiate changes that might produce consistent profits."
More information is available at www.ircweb.org.
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