Home Owner Insurance Crisis To Worsen

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Home owners who've suffered homeowners insurance premium hikes as high as 35 percent could face yet another increase -- this one for 20 percent more.

A new study says despite recent rate increases and underwriting actions to reduce the industry's exposure to growing numbers of moisture- and catastrophe-related claims, the industry has yet to raise premiums high enough to offset the industry's growing cost of capital.

Chicago-based Aon Corp. says the cost of capital for personal lines of insurance is 11 percent to 13 percent. Homeowners insurance receipts returns only 4.8 percent and you, as a home owner, will have to help make up the difference.

Aon offers risk management, retail, reinsurance and wholesale brokerage, claims management, specialty services, and human capital consulting services.

Bryon Ehrhart, president, of Aon's Reinsurance Services says homeowners insurance premiums recently have risen 10 to 15 percent on a national average. While home owners in some regions have not suffered any premium increase, others are paying 30 to 35 percent or more for insurance than a year ago.

To make the industry financially viable, some homeowner insurance companies will have to raise rates another average 10 to 20 percent nationwide. Not all policy holders will be affected, but for home owners who do pay still more, some will pay more than others. The 10 to 20 percent is only an average.

Ehrhart said recent premium increases have been necessary after 10 years of losses in the homeowners insurance sector has cost insurers billions.

"There's nothing malicious going on. The pain follows suffering by the insurance industry which has lost $28 billion dollars," Ehrhart said.

Critics like the new Americans for Insurance Reform (AIR) say the industry is at fault and charge that the insurance industry is an ENRON-like behemoth of financial mismanagement. Bad investments, risky underwriting and other financial habits are now costing the insured more than they should pay to live safe and healthy lives. In the last 30 years, the insurance industry thrice has claimed liability insurance "crises" that rendered insurance unaffordable or unavailable at any price for many businesses, professions, home owners and others, according to AIR.

Covering your assets

The higher cost of insurance makes it difficult to shop around. Insurers who can't afford additional risks -- often those in regions where they are the dominant insurer -- are not taking on new customers. That reduces the pool of available insurers.

"Within the context of what regulations say they can charge some insurers are saying 'We don't know if we can continue to make these promises and keep them at these prices,' " Ehrhart said.

Still other insurers are suffering financially and as a result have had their rating reduced by financial rating companies like A.M. Best, Standard & Poors and others.

"If shopping around means find the best terms and conditions and price that might not be enough. You also have to look carefully at who is selling insurance and if they will be able to pay claims should there be a catastrophe," said Ehrhart.

Ehrhart suggest shopping around long before your policy's expiration date to give yourself ample time to check the financial status of insurers along with rates, available coverage, terms and other variables.

"Don't turn down a renewal notice," until you've otherwise secured satisfactory coverage, he added.

Other home insurance shopping tips include:

• Determine what coverages you want and need, including amounts of insurance and deductibles. Shop for enough coverage to avoid a major financial loss if you have a fire or other catastrophe. This means keeping a realistic dollar amount of coverage on your house. Studies show most home owners are under insured because the value of their home has grown, they've acquired more possessions, they've performed home improvements that increased the value of their home or they've forgotted to include a home-based business, among other reasons.

• Shop for replacement cost coverage, not home value-based coverage. Replacement cost coverage is based on what it will truly cost to rebuild your home and replace its contents. Home value based coverage will likely fall short of true replacement cost.

• Reduce costs by raising deductibles to affordable levels. Discounts are also available for home security systems, holding more than one policy type (auto, life, health, etc.) with one company.

• Know what a policy covers and what it doesn't cover. Special valuables, collections, home based business equipment and supplies and other items may require special endorsements that can raise the cost of your coverage.

• Understand what's necessary to file a clam. Keep detailed records of your property and its contents by using both written descriptions and visual records, say photographs, video tapes or digital images to document the condition of your property and the scope of your belongings.

• Consider the assistance of an independent insurance agent for your search. He or she can search multiple companies to meet your needs and can tell you a company's current rating.