Okay I've got one for all of you. For those of you who LOVE a good discussion (and you know who you are) I hope you'll jump right in.
This morning I was watching the weather channel having my first cup of coffee and they were reporting NEWS regarding New Orleans coastal homes and an approved rate increase on home owners policies of 480%. The reasoning behind this was due to the "Cost" of the the prior hurricanes.
I was reading yesterday on Insurance Journal that Texas also took a rate increase on thier home owners policy for those residing at the coastal level.
Here's my issue with all of this. The basic ISO and every HO2, HO3, HO4 and HO5 I"ve written also does not cover "Floods", if you want flood insurance you have to purchase a Flood Ins. Policy. How can the insurance industry justify increasing rates based on the location (being a coastal home) and the possibility that your home may flood when the basic policy doesn't cover Flood. I can see raising rates on Flood Insurance but Home Owners policies!
(Disclaimer: I am not referring to water damage which occurs from Fire or pipe breakage)
Brandy
Insurance Rate News on The Weather Channel June 3
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bindscott
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People who live in states that do not have a risk of hurricane or tropical storm will not be substantially affected. However, increases in the price of reinsurance (insurance purchased by insurance companies) may spill over into non-coastal areas putting some pressure on premiums there. The increased cost of building materials across the country also may have an impact. For example, those with inflation-guard endorsement on their homeowners policy could see their premiums rise as policy limits and rates are adjusted to reflect escalating construction costs.
In areas vulnerable to hurricanes or tropical storms, rates have been rising in recent years and they will continue to do so. That's because the frequency and severity of catastrophic storms is expected to grow for decades to come.
Insurers cannot increase rates to make up for past losses. They must be based on projections of future losses in a given state. Insurers cannot arbitrarily raise rates. Rates must be reviewed and approved by state deapartment of insurance. Companies must demonstrate that there is an increased risk in a specific state. Losses from one state cannot be used to raise rates in another.
Prices will increase nationwide, however, if lawsuits succeed in retroactively rewriting insurance contracts to compel property insurance companies to pay the flood damage claims of people who did not buy flood insurance coverage from the National Flood Insurance Program. Generally speaking, standard homeowners and business property insurance policies provide hurricane damage from wind, but do not cover losses from floods. If insurers are compelled to pay huge numbers of flood claims for which they collected no premiums and have no reserves, insurance prices around the country will have to rise.
In areas vulnerable to hurricanes or tropical storms, rates have been rising in recent years and they will continue to do so. That's because the frequency and severity of catastrophic storms is expected to grow for decades to come.
Insurers cannot increase rates to make up for past losses. They must be based on projections of future losses in a given state. Insurers cannot arbitrarily raise rates. Rates must be reviewed and approved by state deapartment of insurance. Companies must demonstrate that there is an increased risk in a specific state. Losses from one state cannot be used to raise rates in another.
Prices will increase nationwide, however, if lawsuits succeed in retroactively rewriting insurance contracts to compel property insurance companies to pay the flood damage claims of people who did not buy flood insurance coverage from the National Flood Insurance Program. Generally speaking, standard homeowners and business property insurance policies provide hurricane damage from wind, but do not cover losses from floods. If insurers are compelled to pay huge numbers of flood claims for which they collected no premiums and have no reserves, insurance prices around the country will have to rise.
Bindscott,
Overall your response to Brandy's queerie was correct. However, rates can be increased not only to reflect future losses and reinsurence increases but also to bolster reserves which are depleted. Carriers also can raise rates to simply make themselves less competitive in an area where they have too much exposure - (slows down business immediately). Also, not every state is file & use. A lot of states are still use & file - which means that the carrier can put the rates on the street up to 90 days prior to filing for approval. There's also the "me too" filings which means that you wait for one of the big boys to file and get a copy, change the name. A me too filing is an automatic since the rates & forms have already been approved. Progressive & St Farm seem to be the ones who other carriers copy most often because they have large enough numbers to be actuarily sound.
Coastal policies already have large wind deductibles and the number of carriers who want to write in those areas is shrinking because at the time of the loss the contract now covers whatever the courts or the DOI choose to interpet coverage as. Bottom line, you and I have the same carrier - major fire losses in CA - great results in AZ - you're going to get a hefty increase in your rate - unfortunately, I'll still get a small one. It's that "law of large numbers" thing we all learned in intro to insurance.
Overall your response to Brandy's queerie was correct. However, rates can be increased not only to reflect future losses and reinsurence increases but also to bolster reserves which are depleted. Carriers also can raise rates to simply make themselves less competitive in an area where they have too much exposure - (slows down business immediately). Also, not every state is file & use. A lot of states are still use & file - which means that the carrier can put the rates on the street up to 90 days prior to filing for approval. There's also the "me too" filings which means that you wait for one of the big boys to file and get a copy, change the name. A me too filing is an automatic since the rates & forms have already been approved. Progressive & St Farm seem to be the ones who other carriers copy most often because they have large enough numbers to be actuarily sound.
Coastal policies already have large wind deductibles and the number of carriers who want to write in those areas is shrinking because at the time of the loss the contract now covers whatever the courts or the DOI choose to interpet coverage as. Bottom line, you and I have the same carrier - major fire losses in CA - great results in AZ - you're going to get a hefty increase in your rate - unfortunately, I'll still get a small one. It's that "law of large numbers" thing we all learned in intro to insurance.
Re: Insurance Rate News on The Weather Channel June 3
Does anyone recall any litigation with State Farm and thier inflation guard product? I am trying to learn more about this product and heard that State Farm got into some litigation with this coverage.