Why does my home insurance premium go up every year? Or, can I get a home insurance company that doesn’t raise their rates every year?
These are the two most common questions I get asked every day of every week for the past 18 years. It’s no wonder consumers are confused and even angry when their home insurance premiums go up by double-digit percentages every year when in some cases they have not filed any claims.
The answer: it’s complicated! We can start with the weather. We have a running joke around the office that we don’t have to ask anyone when their roof was last replaced because everyone in Central Arkansas has a new roof including me and most of our Employees. Since 2008 we have endured too many tornadoes to count, a couple of hurricanes that dumped 5 plus inches of rain each, and so many hail storms that our office joke is no longer funny, especially if you are an insurance company.
In our agency, the average home insurance policy premium is just over $1000.00 and the average roof claim paid out the past 5 years was $8400.00. That means that for the next 8 years, without counting expenses the insurance company is losing money. Insurance is a form of shared risk, which also means that even if you don’t have a claim, your rates are still going to increase as part of a general rate increase for all customers of that company statewide.
We have a great Department of Insurance here in Arkansas. Their goal first and foremost is to protect consumers, and they do a great job of holding rate increases down to the absolute minimum required to keep companies here in Arkansas and open for business. In neighboring states, only a handful of companies is available to write homeowners’ insurance and consumers have very few choices.
A quick look n the Arkansas Insurance Department website will show you the rate increases that have been approved for home insurance companies in Arkansas. 10-15% seems to be the norm in the past few years. The main factor that goes into the need for a rate increase is a company’s loss ratio. The loss ratio is basically the amount of premium a company takes in minus the amount they payout for claims.
Another quick look, this time on the internet, will show that popular companies in Arkansas during 2011 had loss ratios ranging from 106-194%. 2008 was worse while 2009 and 2010 were almost as bad. All told, 2008-2011 were the 4 worst weather years for home insurance in the history of insurance in Arkansas.
After 4 straight years of high double and triple-digit loss ratios and no profits, companies either leave the State or raise rates. They also take away discounts and change underwriting criteria. Four years ago we could write a home with up to 2 non-weather losses (weather losses do not count in Arkansas, thanks again to the Arkansas Insurance Department.) Now with most companies, you cannot even have one non-weather loss or you become ineligible.
Rest assured that your local insurance agent along with their representative companies and the Arkansas Insurance Department are doing everything they can to keep home insurance not only available but also as inexpensive as possible.