More claims send home insurance costs up
It seems Mother Nature has unleashed her ire on Oklahoma over the past few years, pummeling the state with tornados, hailstorms, wildfires, blizzards and now earthquakes, of all things.
Some home insurance policy holders, in turn, find themselves being hit with higher insurance rates.
One Tulsa World reader noted how his homeowners insurance was increasing from $856 to $1,501 a year due to the rise in nationwide disasters, as his insurance company explained to him.
While there is no way to quantify what percentage homeowners’ insurance has increased or will increase, rates in Oklahoma have been rising to some degree for a while because of the number of severe storms, said Glenn Craven, communications officer with the Oklahoma Insurance Department.
“Every company is going to base its rate … on its experience. Some may suffer significant losses from a storm because they have homes in that location, and other companies suffer less in the way of losses,” Craven said.
Companies adjust their rates periodically over time, Craven said, and depending on their experience, some do it suddenly and others more subtly.
“Oklahoma has been ravaged by severe weather, wildfires and just about every weather-related disaster known to man, and that comes into play along with a lot of other factors when companies begin to establish their rates,” said Jerry Johns, president of the Southwestern Insurance Information Service, a trade group that serves 85 percent of home insurers in Oklahoma and Texas.
Industry data show claimed losses on state home-owners policies more than quintupled from 2005 to 2010, according to a previous Tulsa World report.
Homeowner claims in Oklahoma surpassed $1 billion in 2008 and last year totaled more than $1.6 billion. That compares with $319.2 million in homeowner claims that Oklahoma insurers paid out in 2005 while collecting $804.1 million in premiums, based on statistics from the National Association of Insurance Commissioners.
“The last four years have really pointed out to us and the industry just how bad a bad year can be when it comes to wind and tornado activity. They’ve been very bad, obviously,” said James Gillette, vice president of actuarial services for American National Property and Casualty, in a phone interview from Springfield, Mo. “When you’re trying to come up with long-term averages if you think the worst an event can be is one number and it turns out to be twice that average, your numbers go up significantly.”
Home insurance rates for Oklahoma clients of American National, which has about 13,000 homeowner policies in the state, have increased significantly in the last two to three years, with the first rate increase occurring in 2009, Gillette said.
Rates don’t go up just because an insurer has lost a lot of money but because future costs are expected to be greater, Gillette added.
“We have seen a huge loss-severity increase year over year for the last five years in Oklahoma, particularly,” said Gillette. The average loss severity, which refers to the amount paid out for claims incurred, has been going up between 12 percent and 15 percent over the last five years.
A lot of Oklahoma’s losses over the last four years are related to roof replacement due to wind and hail damage. Gillette noted that roughly three-quarters of the premium dollars that are paid in Oklahoma go to wind and hail losses, which is extraordinary in the country.
Weather cannot be entirely blamed for the higher rates, Johns said, noting that other factors include a home’s age, its location and construction. Johns added that he hasn’t seen a consistent across-the-board pattern of companies raising rates.
John Lucido, state executive director of Farmers Insurance, agreed that home rates are increasing, but, again, how much depends on the company.
In August, Farmers Insurance raised home insurance rates about 8 percent on average for Oklahoma policy holders. But some home-owners saw a higher percentage increase than that and others lower, he said.
Information from the National Association of Insurance Commissioners shows that Farmers collected $159.8 million in premiums last year and paid out $274.2 million in claims.
Significant damage from several storms and not just one storm can cause rates to rise. With all of the terrible weather over the last couple of years, the industry has “just taken it on the chin,” Lucido said. And different companies are handling it in different ways, one of which is raising rates.
“It has been an unusually busy year, probably our busiest on record for catastrophe claims,” said Jeff Davis, a public affairs specialist for State Farm Insurance Cos. in Tulsa.
Through the third quarter, State Farm had handled 970,000 catastrophe claims, stretching from wildfires in western Texas to storm damage in Maine, and the company paid out $5 billion in catastrophe claims nationwide.
“Our rates are based on anticipated need to pay claims in the future, so we look over a long period of time and try to project the number of claims that we will have. … It’s in our best interest and our customers’ best interest to not have large spikes when it comes to a rate increase,” Davis said.
Based on information from the National Association of Insurance Commissioners, State Farm, which is the state’s largest insurer, last year collected $275.4 million in premiums in Oklahoma and paid out $405.5 million in claims.
Oklahoma Farm Bureau Insurance, which has more than 100,000 property policies and is the state’s No. 1 insurer of farm and ranch policies and one of the top insurers of homes, last year raised rates anywhere from 5 percent to more than 30 percent based on different criteria for individual customers, said John Wiscaver, vice president of public affairs for the Oklahoma Farm Bureau.
He noted that the bureau looks at many factors and constantly tries to use better ways of assessing risk for individual customers and takes advantage of new underwriting actuarial processes.
“The goal is to try to price the product the best we can to keep it affordable for customers,” Wiscaver said.
By Laurie Winslow, Tulsa World Staff Writer