Homeowners Insurance Rates on the Rise: Increased Catastrophes, Soaring Home Repairs and Excessive Jury Awards Among Reasons
NEW YORK – An extraordinary number of catastrophes, the high cost of home repairs and excessive jury awards due to the emergence of mold claims are pushing the cost of homeowners insurance upward — an average of 8 percent nationwide in 2002 and a projected 9 percent in 2003, according to a new report by the Insurance Information Institute (I.I.I.).
During the 1990’s, the frequency and severity of catastrophes began to increase dramatically. Over the past 12 years, insurers paid out more than $100 billion in catastrophe-related losses — about $700 million per month- many times more than in previous decades. Homeowners insurance rates in many parts of the country continue to rise because of the extraordinary costs associated with paying these claims. In fact, virtually every part of the country is now at risk for billion dollar disasters.
According to the I.I.I. report, homeowners insurers over the past decade paid out $1.18 in losses and expenses for every $1 they earned in premiums. In 2001 alone, homeowners insurers paid out $8.9 billion more in losses and expenses than they received in premiums, the second worst year on record (1992, the year of Hurricane Andrew, produced losses of $11.5 billion). Losses in homeowners insurance over the past three years are estimated at $19 billion, rivaling the $20.3 billion in insured property losses from the September 11th terrorist attack.
The I.I.I. noted that home repair and rebuilding costs continue to rise. This phenomenon is a key factor for rising homeowners insurance rates.
In addition, mold has recently emerged as the dominant cost driver in some states, according to the report. Mold claims — which were virtually unheard of just a few years ago — cost homeowners insurers more than $1 billion dollars last year, approximately five times the cost in 2000.
Mold is certainly not new – it’s been around for hundreds of millions of years — but the sharp rise in mold claims is a 21st century phenomenon, the I.I.I. noted. Multi-million dollar jury awards, sensationalized reporting in the media and profiteering by some individuals have led to an explosion in mold claims and costs.
In addition to rising homeowner costs, the report stated that the average cost of insuring cars is also expected to increase — by 8.5 percent for 2002 and 9 percent for 2003. Rising medical costs, sharply higher vehicle repair costs and soaring jury awards in vehicular liability cases are the principle reasons for higher auto insurance rates. In several states, fraud and abuse are also pushing up the cost of auto insurance.
Although the cost of insuring homes and autos is rising, knowing how to save money can go a long way toward offsetting higher insurance costs, according to the I.I.I.
What Consumers Can Do:
- Buy your home and auto policies from the same insurer. Some companies that sell homeowners, auto and liability coverage will take five to 15 percent off your premium if you buy two or more policies from them.
- Make your home more disaster-resistant. Find out from your insurer what steps you can take to make your home more resistant to windstorms and other natural disasters. You may be able to save on your premiums by adding storm shutters, reinforcing your roof or buying stronger roofing materials. Older homes can be retrofitted to make them better able to withstand earthquakes. In addition, consider modernizing your heating, plumbing and electrical systems to reduce the risk of fire and water damage.
- Improve your home security. You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm or dead-bolt locks. Some companies offer to cut your premium by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police, fire or other monitoring stations. These systems aren’t cheap and not every system qualifies for a discount. Before you buy such a system, find out what kind your insurer recommends, how much the device would cost and how much you’d save on premiums.
- Before you buy a car, compare insurance costs. Your premium is based in part on the car’s sticker price, the cost to repair it, its overall safety record and the likelihood of theft. Many insurers offer discounts for features that reduce the risk of injuries or theft. These include air bags, anti-lock breaks, daytime running lights and anti-theft devices.
- Reduce Coverage on Older Cars. Consider dropping collision and/or comprehensive coverages on older cars. It may not be cost-effective to continue to buy these coverages on cars worth less than 10 times the amount you would pay for the coverage.
- Raise your deductible. Higher deductibles on your home or auto could produce savings of 15-30 percent or more.
- Maintain good credit. Increasingly, insurers are using credit-based insurance scores to determine homeowners and auto coverage premiums. All else being equal, a person with a good insurance score will pay much less for insurance than someone with a poor score.
For additional information on homeowners insurance, access the I.I.I.’s website at http://www.iii.org.
The I.I.I. is a nonprofit communications organization sponsored by the property/casualty insurance industry.
SOURCE: Insurance Information Institute