National Homeowners’ Insurance Rate Hikes Likely as a Result of Sandy

November 7, 2012

As flood waters from Superstorm Sandy continue to subside, they are causing the opposite effect on homeowner insurance premiums – which are rising.

“Rates are increasing rapidly across-the-board, and on a national basis, even in states that were left high and dry by the storm,” says Richard “Gordy” Bunch, president and CEO of The Woodlands Financial Group (TWFG), a national homeowner insurance services agencies.

“Our headquarters in Texas, with 3,000 affiliates and branches in 38 states, are being forewarned with definitive messages from insurance carriers that they are filing for rate increases,” Bunch said.

He explains that almost all insurance rates are set by carriers, but they must be approved by licensing commissions in individual states.

He referred to one of America’s largest carriers which sent an e-mail recently urging agencies to document any lower rates they have already quoted. The company was adamant, however, that the new higher rates will go into effect almost immediately. ‘The premium on your quote will be higher than your original quote,’ the insurance carrier told agencies. ‘Customers will have to pay the new higher rate, but your documented original quote could be reviewed later for policyholder credit.’

Bunch represents more than 200 carriers and says homeowner insurance premiums have been rising since 2004. He implicated every hurricane dating back to 1993.

“Sandy is only the latest in a series of devastating and costly hurricanes that have hit the United States and keep changing our models,” Bunch said.

Bunch explained that each hurricane contributes, by its unique impact, to new catastrophe modeling and increased homeowner premiums.

“Andrew brought new construction guidelines in 1993 since that storm uncovered lax building codes. In 2005, Katrina increased PML (Probable Maximum Loss) projections for almost every coastal-exposed home. Since many insurance companies had not bought reinsurance coverage prior to Katrina, post-Katrina created a surge in demand for catastrophe reinsurance which increased reinsurance expenses for the carriers and, ultimately, homeowner’s premiums along the Gulf Coast. Rita made landfall just 30 days after Katrina. Then, three years later, Ike created another new model by adding near-term frequency updates to the catastrophe expectations. This increased premiums because the expectations of catastrophes had increased,” Bunch said.

He said the insurance industry has not had its geographic focus on the mid-Atlantic and New England.

“The fact that in 2011 Irene became more of an inland flooding storm, may have provided a false sense of security and avoided new modeling for that area. But, now that Sandy in 2012 has made a significant impact, just one year after Irene, there will be new modeling and near-term frequency factors applied to the mid-Atlantic and New England exposures. Higher premiums for homeowners are again inevitable,” Bunch said.

Source: The Woodlands Financial Group

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