Ron Durbin wasn't happy when Farmers Insurance notified him that his homeowners premium would go up 17 percent when he renewed the policy in August.
"If it's 17 percent this year, what's it going to be next year?" the retired systems analyst from Omaha remembers thinking.
More Nebraskans and Iowans can expect to find their homeowners insurance premiums rising. The culprits, according to insurers: hailstorms that have pelted the states in 2010 and 2011, low returns from investments, higher costs to repair homes and rising legal expenses.
"Your wind and hail season has been pretty strong," said Mele Telitz of Denver, a spokeswoman for Allstate, which is seeking a 12 percent increase for most of its Nebraska customers and increases of up to 30.9 percent for a small number of homeowners.
"We have had a very poor experience in Nebraska for a number of years, due primarily to storm damage," said Terry Timm, senior vice president with North Star Mutual Insurance Co. of Cottonwood, Minn. The company plans a 5.95 percent across-the-board increase for its 5,000 Nebraska customers as policies renew after Nov. 1.
State Farm Fire & Casualty — part of State Farm Mutual Insurance, the largest home insurer in Nebraska and Iowa — has a rate increase pending in Iowa but so far not in Nebraska, where it raised rates an average of 4.6 percent last January. Nine other insurers in Nebraska and one in Iowa have premium increases under review by state government agencies.
Nebraska and Iowa do not make public details of pending rate increases. But some other states do, and they are seeing premium increases, too. State Farm plans increases averaging 9.6 percent in Texas and 7 percent in Georgia. Also in Georgia, Travelers Group filed for an 18 percent increase after a 10 percent increase that is to take effect later this year, and Auto Owners Group is seeking a 22 percent increase. The companies cited storm-related claims.
More than a dozen companies in Florida raised premiums between 6 percent and 34 percent this year, and 19 others have increases pending.
Alabama Gov. Robert Bentley set up a 31-member commission charged with making homeowners insurance cheaper and more affordable, and a special session of that state's Legislature is slated to tackle the problem.
Omahan Durbin, faced with an increase in his premiums, took steps that experts recommend.
He visited with his insurance agent, who helped him trim back the increase by raising the policy's deductible and changing some of its other terms. He ended up paying about $100 more a year, rather than the $300 increase otherwise due.
"But if something happens there's going to be more out-of-pocket expense for me," Durbin said. "I've got to look around and see if there are any better alternatives. My suspicion is that there aren't."
That may be exactly right, according to Steven Weisbart, chief economist for the Insurance Information Institute in New York City.
"We are now discovering that there isn't a square inch of this country where there isn't some disaster already happening or just about to," he said, exaggerating only slightly. With three months remaining in 2011, insured damage from storms and other natural causes has passed $20 billion, about what's expected for an entire year.
Weisbart said some companies that wrote lots of insurance in hurricane-prone states decided to spread their "geographic risk" by selling policies in the Midwest, only to end up with high claims from hail and tornado damage. And their investment income — often used to subsidize homeowners' premiums — faltered as interest rates plummeted and the stock market skidded.
Preliminary totals from the National Oceanic and Atmospheric Administration show 1,070 damaging storms in Nebraska and 770 in Iowa through September of this year. That compares with 980 in Nebraska and 758 in Iowa in 2010. The figures show 81 tornadoes in Nebraska and 68 in Iowa so far this year compared with 46 in Nebraska and 52 in Iowa in 2010.
The agency cautioned that some of the recent tornadoes haven't been confirmed.
Combined with higher building costs and legal expenses, that leaves companies with few alternatives to raising premiums.
Claims paid by Boston-based Homesite Indemnity Claims for hail damage have been doubling or tripling in some states the past few years, said spokesman Anthony Scavongelli. Homesite plans a 1 percent premium increase by the end of this year in Nebraska and Iowa, where it insures about 1 percent of homeowners.
The two states are within a belt of about 20 states where tornadoes and hail have caused especially severe damage the past three years, Scavongelli said, sending claims for hail damage "like a hockey stick, straight up. That is really what you were seeing, driving these costs."
Insurance companies sometimes lower their premiums to attract new business but end up having to raise them later. North Star cut its premiums in Nebraska for three years in a row, intending to add customers so that the risk of claims would be spread more widely, said Timm, the North Star executive. But claims have outweighed premium revenue, he said, and the company raised premiums in March 2010 and April 2011 before the latest planned increase.
Insurance companies are regulated under state laws that require them to charge premiums that are adequate, not excessive and not unfairly discriminatory.
If premiums are too low, a company could go bankrupt and leave policy holders uncovered. State regulators review the companies' financial figures and can negotiate if regulators think the planned premium increases aren't justified. In Nebraska and Iowa, insurance companies can change premiums as soon as they file their paperwork with the state, but in practice they wait for the state reviews.
Nebraska Insurance Department Director Bruce Ramge said about 50 companies offer homeowners coverage in the state, and he expects more increases. "I think it's kind of just starting now. We're seeing a lot of them in the 9 or 10 percent range, and some may even be higher."
Some companies have had insured losses over the past year that totaled 50 percent more than the premiums they collected, he said.
Iowa Insurance Commissioner Susan Voss said companies can't use claims from other states to influence premiums for Iowa customers unless a company has so little business in Iowa that it can't recoup local costs from Iowa premiums. She said damage from the Missouri River flood this year is covered by the separate federal flood insurance program, not standard homeowners' policies.
Weisbart, from the Insurance Information Institute, said it's important for insurers to have adequate premium revenue to stay in business, even if it costs homeowners more. Over time, the companies compete for customers by limiting increases or even reducing premiums.
For now, he said, the cycle of homeowner insurance premiums is on the upswing.
Courtesy: www.Omaha.com