Home insurance costs up sharply

September 6, 2002

By Mary Fricker
THE PRESS DEMOCRAT
Santa Rosa, California

After several years of modest price increases and easy renewals, leading insurance companies are suddenly raising rates on homeowners insurance policies 20 percent this year and denying renewals to people who have filed claims.

Next year, rates are expected to surge even more, as the industry tries to offset rising costs and declining investment returns, insurance experts said Thursday. "Virtually every major carrier has asked for some sort of increase," said Nanci Kramer, deputy press secretary for the California Department of Insurance, which must approve most rate increases. "It's a very hard market for homeowners." The harsh new environment, in California and nationwide, has stunned consumers and triggered a barrage of complaints to state regulators.

Santa Rosa pharmacist Jeddie Scardino said she was floored when her Farmers Insurance agent called in June to warn that her annual homeowners insurance premium, which was $620 last year, had soared to $1,831 this year. In reply to her outraged complaint, a Farmers executive attributed the increase to four rate hikes approved for Farmers by the state insurance department in the 10 months ended in June, for a total of 25.7 percent, and to tough new underwriting standards.

The new underwriting standards hammered Scardino for filing three claims in 2000 -- twice for broken glass, costing $106 and $175, and once for floor damage at $1,033. "I was completely stunned," said Scardino, who has insured her home and vehicles with Farmers for 22 years. "If I were Farmers, I would want clients like me."

Angrily, she shopped around, to no avail. Insurance companies share information with each other about policyholders, and no one else wanted her business. So Scardino increased her deductible, which brought her premiums down to $1,365 -- still twice what she was paying last year. And she'll try hard to avoid filing a claim for two years, since Farmers said it will reduce her premium if she has a clean slate for two years.

In some ways, Scardino may have been lucky. Many insurance companies are simply refusing to renew policies if the policyholder has filed a couple of claims over a three- to five-year period, Kramer said. "The number one complaint we're getting on our hotline is that they're getting non-renewed," Kramer said. Carriers are raising rates and tightening underwriting standards for several reasons, according to Robert Hartwig, chief economist at the Insurance Information Institute, a New York research arm of the insurance industry.

Over the last decade, carriers have had an unusually large number of catastrophic events -- meaning natural disasters with claims exceeding $25 million. In addition, the cost of home construction and repairs has climbed, the U.S. housing stock is aging and claims for mold damage, unheard of just a few years ago, cost home insurers more than $1 billion last year, Hartwig said.

As a result, carriers have paid out $1.18 in claims and claim expenses for every $1 they earned in premiums over the last decade, Hartwig said. For most of the 1990s, insurers covered the shortfall with generous investment returns. But the recession and the stock market swoon erased that edge.

Consumer groups are denouncing the rate increases as efforts by insurance companies to compensate for bad investment decisions. "Rather than sucking it up like the rest of us, insurance companies have gone to the insurance department seeking rate hikes. They want consumers to pay for their own investment problems," said Douglas Heller, senior consumer advocate with the Foundation for Taxpayer and Consumer Rights, a leading consumer group in Santa Monica.

The four leading homeowners insurers in California, State Farm, Farmers, Allstate and California State Automobile Association -- which together write more than half of the policies in California -- have each been granted rate increases of 19 percent to 21 percent this year.

On a typical policy, with an annual premium of $600 to $800, the increases will mean an extra $114 to $168 a year. These are average increases. Some will be larger, like Scardino's, and some will be less. The increases go into effect when a policy renews.

Nationwide, the average premium is expected to rise 8 percent this year and another 9 percent next year, from $512 last year to $603 next year, according to the Insurance Information Institute." It's still affordable, but where it becomes pricey is where you've had claims," said Kim Johnstone, an independent agent in Petaluma for more than 25 years.

"Most consumers have no idea what a claim can do to them," Kramer said. "Consumers really have to ask themselves hard questions when they are turning in a claim." The insurance department has to approve all rate increases except to cover such things as rising home values, Kramer said. Consumers who question their rate increase should contact the insurance department, Kramer said. "If you do not like the answer you're getting from your company, don't accept it as the last word. Last year we took a half-million calls and returned $30 million in premium dollars to consumers," Kramer said. The number to call is (800) 927-HELP.

You can reach Staff Writer Mary Fricker at 521-5241 or
mfricker@pressdemocrat.com

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