The cost of homeowners' insurance claims has been increasing rapidly in recent years despite a long-term decline in the frequency of claims, according to a new report from the Insurance Research Council ("IRC").
According to the IRC, the average claim payment per insured home countrywide grew at an annualized rate of 3.8 percent, from $229 in 1997 to $642 in 2018. Over the same 22-year period, inflation averaged approximately 2.2 percent.
The IRC attributed the increase in average claim costs per insured home to rapid growth in claim severity, which is the average cost per paid claim. Claim severity increased 373 percent, from $2,676 in 1997 to $12,654 in 2018. A 2.9 percent annualized decrease in claim frequency partially offset the 7.3 percent annualized growth in claim severity.
In the study, the IRC examined the frequency and cost of claims paid by homeowners' insurance companies countrywide and in each state. In addition to documenting changes in basic claim frequency and severity, the analysis focused on the contribution of catastrophe-related losses to overall claim outcomes and contrasted widely varying outcomes and trends in different states. The percentage of total claim payments over the study period attributed by insurers to catastrophe events ranged from two percent in Alaska to 49 percent in Minnesota.
"This report will enhance understanding of what is happening in homeowners' insurance markets around the country," said Elizabeth Sprinkel, senior vice president of the IRC. "Insurers face significant challenges in responding effectively to rapid claim cost growth and volatile trends that vary significantly across states. The information in this report will help consumers understand some of the underlying factors explaining their experience in the homeowners' insurance market."
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].