Home owner insurance inflation

[ex-khobar Andy]

This year's homeowner premium is up 25.95% from last year. Allstate.

Anyone else seeing increases like this?

As a general point there are some legitimate reasons for inflation. Ukraine; lingering effects of Covid uncertainty; supply chain disruption; climate change effects on agriculture. But judging from record company profits, especially in the energy sector, I think much of it is opportunist.

Allstate's stock does not appear to have moved very much over the last few years and its profits have been decreasing: so possibly their price increase is a reaction to this.

[Big RR]

My homeowners went up a little, but nowhere near 25%. I'd check to see if they added some new coverages that could be optional; also, it could be that your house has gone up in value considerably, but from last to this year, that's probably doubtful.

[MajGenl.Meade]

The size of rate changes is usually locally targeted (state/region). Nationwide (for example) could and did raise prices strategically to AVOID selling new policies based upon claim rates. They also decreased rates occasionally to encourage sales.

Because the cost of paying claims comes "equally" from all clients (especially in a mutual company), the current client's premium goes up and it can be horribly high. The aim is get out of (lose) a number of what are now "high-risk" claims that might be made.

One does not simply raise the price of new policies.

[ex-khobar Andy]

I bitched to Allstate about this increase. Here is their response.

I have reviewed your renewal and see that your rates have increased. We are seeing increases in all 4 states that we write in. Another thing to factor in is that that your home is based on replacement cost which our system has to recalculate each year. Coverage is higher, but the main increase was due to the rates as a result of the multiple catastrophe storms our region has experienced over the past year and half.

So it looks like (a) general inflation (b) increase in house value - generally various sites reckon Louisville value increased by 3.5 to 4.5% over the past year and (c) yes we've had a lot more stormy days than usual especially in the last six months.

I've got some time and I may look elsewhere for quotes.

[Big RR]

The other thing is that insurance companies have large reserves (contingent liabilities) they keep every year to cover liabilities in the future; the state requires a certain reserve, but the company can keep higher amounts (and invest them to generate more profits--indeed, insurance companies are a lot like banks--that's where they make a lot of their money). And then they go to the commission and say they are experiencing a loss which must be compensated for by increased premiums). Just a game they play.

[Scooter]

A study that was done in Ontario some years ago showed that increases in auto insurance premiums had little correlation with claims experience, but an almost perfect inverse relationship to investment returns. I would bet that a similar situation exists in the home insurance market.

[Sue U]

A study that was done in Ontario some years ago showed that increases in auto insurance premiums had little correlation with claims experience, but an almost perfect inverse relationship to investment returns. I would bet that a similar situation exists in the home insurance market.

This. Market goes down, premiums go up. Same thing happened in medical professional liability insurance in the 90s and they tried to blame it on trial lawyers and "out of control" juries.

[MajGenl.Meade]

Of course the correlation is to both claims paid and investment returns.

Combined loss ratio compares premiums collected with claims paid + adjustment expenses.

It reveals how much an insurance company spent on paying claims and other expenses compared to the premium received. It is a metric that specifically measures the profitability of insurance companies

.

Naturally, investment returns are affected by loss ratio, improving or declining according to actuarial data (and blind guesses). The driving factor in applying to the state for increases is loss ratio. The issue is not so much whether the State thinks rate requests are too high (not matter what they say) as it is their finding that the projected loss ratio is reasonable. (Objects in that mirror are definitely not debatable)

The fact is that if insurance companies want to improve loss ratio, they increase premiums and vice versa. Improving loss ratio is the same as increasing premiums retained i.e. profits. ROI goes down - rates go up. But not always. Provided claims experience and projections are favorable, companies decrease rates to increase sales (and ROI, profit, what have you). It's the combined loss ratio that guides all that.

Again, this is about mutual insurance companies where the policyholders are the owners. But I don't see that the logic is different in a stock insurer.

[liberty]

This year's homeowner premium is up 25.95% from last year. Allstate.

Anyone else seeing increases like this?

As a general point there are some legitimate reasons for inflation. Ukraine; lingering effects of Covid uncertainty; supply chain disruption; climate change effects on agriculture. But judging from record company profits, especially in the energy sector, I think much of it is opportunist.

Allstate's stock does not appear to have moved very much over the last few years and its profits have been decreasing: so possibly their price increase is a reaction to this.

Insurance companies lost $2 billion during the BLM riots; somebody has to pay for it, that means you.

[Sue U]

Insurance companies lost $2 billion during the BLM riots; somebody has to pay for it, that means you.

OMG you're an idiot. Do you know the difference between residential/homeowners and commercial/surplus lines insurance? No of course you don't.

And (maybe up to) $2 billion in insured losses during protests? Cry me a river. The 2020 Atlantic hurricane season alone produced $51.14 billion in losses; the 2021 season produced $80.72 billion.

Did I say idiot? I meant racist idiot.

[MajGenl.Meade]

That

[liberty]

Insurance companies lost $2 billion during the BLM riots; somebody has to pay for it, that means you.

OMG you're an idiot. Do you know the difference between residential/homeowners and commercial/surplus lines insurance? No of course you don't.

And (maybe up to) $2 billion in insured losses during protests? Cry me a river. The 2020 Atlantic hurricane season alone produced $51.14 billion in losses; the 2021 season produced $80.72 billion.

Did I say idiot? I meant racist idiot.

So it is racist to mention the cost of a riot. What can I make of that? Perhaps you think some riots are good and shouldn't be questioned; even though I wasn't criticizing. Are there other crimes that you consider positive; are there good rapes, murders, and robberies? However, I find nothing positive about a riot. That must be the difference between a moderate like myself and a radical progressive. Moderates are more orderly, and progressives are closer to the beast.

[Econoline]

I think Sue's points were (1) that you implied that there were $2 billion just in residential (homeowner) insurance losses (ummmm...this is a thread about homeowner insurance, after all), and (2) that the losses from the "BLM riots" were miniscule in comparison to losses from a typical natural disaster.

[ex-khobar Andy]

Interesting. My quote from Allstate was $1169 for a year - my house is worth about $300K.

I sent the quote to the company who do my car insurance. I removed all dollar figures from the quote except the value of the house and the total value of various protections and deductibles etc, and I also removed Allstate's name. My guess is that he could deduce easily enough that it was Allstate from the form of the quote but he certainly did not have the quoted price.

He quoted me $735 for as far as I can tell the same coverage. Plus, because I already have car insurance through them a further $112 discount. So I can save $546 by moving to them.

Generally I don't go to A instead of B just to save a few bucks. I had enough customers during my commercial career who asked me why they shouldn't go to Joe across the city whose price was 25% less than mine. My response was always the same: "I hope it works out for you but you know where we are if it doesn't." Most of them ended up coming back. I'll happily go to my local independent bookstore and pay 20% more than Amazon because I think these places should be encouraged. But I cannot overlook that sort of saving. If I look online at ratings of insurance companies (US News) I see that the 'cheap' company is rated at 3.8 by their measure while Allstate is at 3.9/5. Pretty similar and probably within the margin of error.

Is there something I am missing here?