Severe Weather Impacts Hike Insurance Rates
March 5, 2012
Consumers, already contending with the rising cost of gasoline, food, and other necessities, could now also face sharply higher home insurance premiums.After several years of modest increases, insurance companies are raising rates to offset a big jump in claims related to damage caused by tornadoes, severe snowstorms, and Tropical Storm Irene last year, according to industry executives. The increases, which must be approved by the state, will likely affect most of the state’s nearly 2 million policy holders, and if approved, homeowners will see their rates go up when they renew or buy new policies this year.
“Homeowners rates are likely to go up a lot this year,’’ said Chris Olie, chairman of Bunker Hill Insurance. in Boston. “It was a wake-up call from Mother Nature.’’
..insurance companies say they need larger increases now because they were hit so hard by wild weather, including a brutal winter a year ago that caused widespread damage from ice and snow; deadly tornadoes that swept through Western and Central Massachusetts in June; Tropical Storm Irene that caused flooding and wind damage in August; and an early snowstorm that downed trees and power lines across the state in October.
Andover Companies, for instance, said it lost $50 million on home insurance in the state last year – more than it earned on Massachusetts policies in the entire previous decade.
Allstate, for instance, has said that climate change has prompted it to cancel or not renew policies in many Gulf Coast states, with recent hurricanes wiping out all of the profits it had garnered in 75 years of selling homeowners insurance (Conley 2007). The company has cut the number of homeowners’ policies in Florida from 1.2 million to 400,000 with an ultimate target of no more than 100,000. The company has curtailed activity in nearly a dozen other states. In 2008, State Farm—Florida’s largest private insurer—stopped writing new policies in the state (Garcia and Benn 2008). This was after suspending sales of new commercial and homeowners policies in Mississippi the year before (Tuckey 2007). A few months later, after being denied a 47% average rate increase, State Farm announced a complete pull-out, (Hays 2009). About 1.2 million customers will be affected. The Florida Insurance Commissioner referred to the decision as “unnecessary destabilization of the insurance market” (Hays 2009). The editor of trade magazine published an editorial about the problem entitled “Like a Bad Neighbor?” (Friedman 2009).
Also in 2008, Farmers announced that they would stop writing homeowners policies throughout North Carolina and not renew existing ones. Such decisions are not taken lightly; Farmers will forego $55 million in annual premiums but claims that losses would be twice this amount (Hemenway 2008). These impacts haven’t been limited to the Gulf coast. According to one estimate, since 2004 one million policies have been canceled in the Mid-Atlantic and New England area, including 50,000 in the New York Metropolitan region (Nevala-Lee 2008).
Oddly, standardized data on insurance price changes are not systematically collected, forcing reliance on news reports and secondary sources. One study reports the following homeowners insurance price increases in the period 2001-2006 (Environmental Defense 2007):
- Alabama: 42%
- Florida: 77% (Miami Beach: 500%)
- Georgia: 45%
- Louisiana: 65%
- Maryland: 76%
- Mississippi: 63%
- South Carolina: 56.4%
- Texas: 50%
- Virginia: 67%