Coastal Housing Markets Fight Against Hike in Homeowner’s Insurance Premiums
A backlash against insurers is building in several coastal states where homeowners’ insurance premiums have increased sharply, despite several years of rising industry profits and an uneventful hurricane season in the East.
In the Florida housing market, where back-to-back hurricanes have helped some rates more than double since 2004, the state legislature yesterday approved a measure aimed at reducing homeowner premiums offered by private insurance companies by 5% to 25% or more.
The legislature has been meeting since last week in a special session specifically aimed at addressing the state’s insurance crisis. The measure now goes to Republican Gov. Charlie Crist, who has made insurance-rate cuts a top priority since taking office this month.
That comes after several large insurers in California recently agreed to roll back homeowner insurance rates by as much as 20%, or a total of $439 million. The cuts, by insurers including Farmers Insurance Co., State Farm Mutual Insurance Cos. and Safeco Corp., came in response to the state insurance commissioner’s efforts since last summer to force down rates in the state.
Premium rates rose substantially in the state in the early part of the decade, and many California mortgage holders lost their coverage after devastating wildfires in 2003.
Insurance companies are regulated by the states, and officials in Connecticut and the Georgia housing market recently rejected some requests for further insurance-rate increases.
Also, regulators in both states are investigating whether insurance companies are maneuvering to circumvent rules aimed at making sure that homeowners in all areas, including riskier coastal zones, can get coverage.
Last year, home insurance rates along the Atlantic and Gulf coasts rose between 20% and 100%, or more. Homeowners also are paying more for less, because insurers are dropping policy coverage for wind, hail and mold damage in many states.
By contrast, rates outside of coastal areas last year rose between 2% and 4% nationally, according to the Insurance Information Institute, an industry research group, and are expected to rise modestly in 2007.
The backlash comes as the insurance industry has had three straight years of rising profits, despite 2005’s devastating Hurricane Katrina, the country’s costliest ever.
Property and casualty industry profits rose to $68.1 billion in 2006 from $49 billion a year earlier, according to A.M. Best, a ratings concern.
Insurance officials say the high profits essentially reflect the industry making hay while the sun shines. In most years since 1980, insurance companies have barely broken even or have paid out more in claims to mortgage loan holders than they collected, says Julie Rochman, senior vice president of the American Insurance Association, a trade group.
“It’s a good idea that insurers have good years so that we are around for exceptionally bad years like 2005,” she says.
Analysts and insurers say that if states force insurers to take on risks they don’t want or to price their policies too low, then companies might withdraw from unprofitable markets, creating shortages, or be unable to pay claims.
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