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Home Insurance Goes Through the Roof

Faced with falling home prices and climbing maintenance costs, struggling homeowners may soon face another setback: higher insurance premiums.

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After rising steadily for the past few years, homeowner insurance premiums are expected to jump another 5% this year to $1,004, according to the Insurance Information Institute. That’s the biggest yearly increase since the market downturn and will mark the first time the national average premium is above $1,000.

Premiums will rise even higher in some states. In Georgia, GuideOne Insurance will raise rates by 12% on average starting this month. Farmers Insurance is increasing rates in Texas by 10% on average. Last month, Allstate started raising rates by 15% in Pennsylvania. And Florida insurer Citizens Property Insurance Corp. and North Carolina Farm Bureau are raising rates on some condo and homeowners by 21% and 6%, respectively.

The higher premiums come at a challenging time for American homeowners, as millions are behind on their mortgage payments and many owe more on their home than it’s worth. Insurers say the higher premiums are partly to cover their rising costs: Insured catastrophe losses in the U.S. totaled $35.9 billion in 2011, compared to a 2000 to 2010 average of $23.8 billion, according to the III. The companies are also paying more in premiums to so-called reinsurers, which provide insurers coverage for widespread catastrophic events, says Steven Weisbart, senior vice president and chief economist at the III.

Meanwhile, insurers’ returns on their investments — roughly 70% of their assets are in bonds – have been low, he says, and they’re looking for other ways to make up that lost revenue. “The only other place insurance companies can get money from is premiums,” he says.

Typically, when policyholders are informed of premium increases they shop around for better prices, but experts say that’s become harder to do. As insurers exit some markets altogether, homeowners are left with fewer companies to choose from. For instance, starting in May, State Farm will not renew roughly 11,000 homeowner policies in five coastal counties in Texas. The company says it’s trying to lessen its exposure to future losses.

To lower premiums, some homeowners increase their deductible, which means they’ll have to pay more out of pocket if disaster strikes before their insurance kicks in. But this strategy might not be as helpful this time around, since some insurers are dropping other types of coverage that were previously part of basic homeowner insurance policies. When coupled with a high deductible, a homeowner’s expenses could soar.

Allstate, for instance, recently introduced a new homeowner’s policy in Kansas and Oklahoma that doesn’t pay out the full cost of replacing all roofs that incur windstorm or hail damage. Kevin Smith, a company spokesman, says Allstate will determine which roofs qualify based in part on their age and condition. If Allstate declines to pay the full cost, it will pay the current value of that roof and the homeowner will be on the hook for the difference. The company says the homeowner’s other option is to purchase so-called replacement cost coverage for roof losses  in addition to their basic policy.

Even if homeowners find a lower premium, it might not stay low for long. Experts say many insurers filed requests with states to raise rates this year. (When states approve higher rates, that leads to higher premiums for policyholders.) For instance, last month, Pennsylvania received requests from Erie Insurance and Travelers to increase premiums by roughly 9% by June and July, respectively, according to the state’s insurance department. (The companies didn’t respond to requests for comment.) In Georgia, most of the major companies filed requests to raise rates from 18% to 22%, says Steve Manders, director of insurance product review at the state’s department of insurance. The states say they don’t usually approve requests for increases by the exact amount insurers ask for.


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Comments (5 of 44)

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    • i’m screwed in texas too, its rising faster than grocery store prices.

    • I’ve lived in my Georgia home for 14 years this March without a single claim on my homeowners insurance. In 2012, responding to a huge rate increase, I increased my deductible to $5K — and even that left me with an 18% increase to my premium. The renewal I just received for 2013 included yet another increase, this time of 17%. 38% higher in just 2 years, with reduced liability for the company and NOT ONE CLAIM EVER. Both times, the answer to my inquiry of WHY was simply “the state allowed the increase.”

      The claim by insurers that their costs are high, that fraud is contributing to their losses, may be true but is not an adequate reason for these astronomical across-the-board hikes. When state insurance regulators simply roll over and say OK to anything requested by the industry, where does that leave the consumers they are supposed to represent? Totally screwed, that’s where. We MUST have insurance, and fewer companies offer it every year. Competition is a joke.

      Insurance by definition involves risk — protection from risk is what we buyers have paid for, for years. But the insurance companies seem to have convinced regulators that “too much risk” is something THEY shouldn’t have to bear, even though they’ve been taking payments for years with no risk at all in most cases. Since buying my first home in 1985, I have paid over $28,000 in homeowners insurance and (fortunately) have received not one penny in claims. I represent $28 grand of pure profit to my insurers. And what’s my reward? Rate increases of over 38% in two years because my state regulators think the insurance industry’s “risks” are too high, and their profits too small. If the time comes when the insurance companies get no increases for four years (like my salary!) I’ll be a little more understanding.

    • This once great country America the United States is so screwed. And, in so many ways. Over the last decade +, things are just eroding. As one had said it very well before, I’m penalized for living in a much lower risk area than other’s who choose the higher ones! And, I’m paying for them! Why is this fair? NOT! I should just burn my house down and make my claim already! Am I’m NOT even underwater on my mortgage!

    • So how is it fair to people like me who have been paying for insurance for 30 years and has never once filed a claim? My homeowner’s insurance increased 23% in 2012 over 2011′s premium. So I guess they figure the longer I go without filing a claim, the more likely I am to file one in the near future? Insurance is a scam, but by law, we have to have it. It isn’t right that people in lower risk areas have to make up the difference for the ones who choose to live in higher risk areas. They know the risk they’re taking.

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