Premiums to Go Up More than 20% in Area
State Farm, the nation’s largest home insurer, is increasing rates more than 20 percent in Virginia, Maryland and the District, blaming rising claims nationally and stock-market investment losses.
The increases take effect Monday for new policies and Sept. 15 for existing customers unless vetoed by state regulators, which is not expected.
State Farm rates will go up 26.8 percent in Virginia, 25.2 percent in Maryland and 21.5 percent in the District. The carrier insures 413,000 homes in Virginia, 348,000 in Maryland and 31,000 in the District.
The increases will be the second affecting Virginians this year. Regulators there have already approved a 10.7 percent increase for new customers in January and for renewals in March. For those renewing in September or later, premiums will go up more than 40 percent this year.
State Farm, which lost $5 billion in 2001, has been seeking rate increases in several states and is tightening its underwriting policies. The firm, which insures more than 21 percent of the nation’s homes, said this year that it will no longer write new policies in 20 states, including Maryland. The Maryland moratorium was effective July 1.
The company also announced effective July 1 that it would write new policies in the rest of the Mid-Atlantic region only when current customers cancel, in order to keep its claim exposure from growing.
Last year insurers paid out $8.9 billion more to cover losses and expenses than they received in premiums, according to the Insurance Information Institute.
Major causes of the deficit were the extraordinary number of weather-related catastrophes, the high cost of home repairs, the aging of the U.S. housing stock and the emergence of mold-damage claims, the institute said. Terrorism threats do not affect homeowners’ rates, analysts said.
“Mold claims — which were virtually unheard of just a few years ago — cost homeowners’ insurers more than $1 billion last year, approximately five times the cost in 2000,” said Robert P. Hartwig, the institute’s vice president and chief economist.
State Farm officials said the size of the rate increase in each state is determined by factors such as how much risk they have with existing customers. They indicated that the company took on too many customers in Virginia, Maryland and the District during good years.
Until two years ago, homeowners’ premiums were relatively flat, subsidized by the big returns that insurance companies got from investments.
Premiums rose less than 3 percent a year, from an average of $500 to $512, in the past two years, the insurance institute said. But Hartwig recently predicted that the industry’s financial problems would drive the average premium for 2002 up 8 percent, to $553.
Consumer advocates said State Farm’s rate increases could trigger a much bigger bounce in the national average.
“What they do really impacts the entire market,” said J. Robert Hunter, director of insurance for the Consumer Federation of America. “If they ask for 25 percent higher premiums and get it, the entire market will follow them, or ask for even more.”
Hunter has been pressing state regulators to at least hold hearings on proposed increases and whether they can be justified by increased risks rather than poor investments.
State Farm’s increases are larger than those sought by most of the other top insurers in Maryland, Virginia and the District.
Virginia insurance regulators say home-insurance premiums this year are up 25.7 percent for Allstate Insurance Co. customers; 17.2 percent for Auto Insurance Co. of Hartford, Conn.; 14.7 percent for Standard Fire Insurance Co.; 14.5 percent for Erie Insurance Exchange; and 11.7 percent for Travelers Casualty and Surety Co.
Rates in Maryland, according to regulators, have gone up 20 percent for customers of United Services Automobile Association, Farmers and Allstate; 15.5 percent for Nationwide; and 9.8 percent for Erie. Rates at Travelers will jump 11.9 percent today for new customers and in September for renewals. Allstate rates are expected to increase 10 percent more in Maryland effective Oct. 1.
District rates are up 21 percent for Allstate customers, 15 percent for Fireman’s Fund and less than 1 percent for USAA and USAA Casualty Insurance Co. Allstate lowered rates 21.9 percent in 2001.
While Virginia homeowners might find an increase of as much as 40 percent in one year daunting, national insurance statistics show that the state’s rates have been among the lowest in the nation.
According to the latest data available from the National Association of Insurance Commissioners, the average homeowner’s premium in Virginia in 1999 was $345. The national average was $487.
The average for Maryland in 1999 was $372. The District average was $617.