The combined effects of increasing claim severity and frequency is causing a rapid rise in the cost of homeowners insurance, according to “Trends in Homeowners Insurance Claims,” a study from Insurance Research Council (IRC).
“This report has significant implications for everyone involved with homeowners insurance,” said Elizabeth Sprinkel, SVP of the IRC. “Insurance companies face significant challenges in responding effectively to rapid growth in claim severity and increases in claim frequency, and in managing the volatility attributable to catastrophe-related claims. In addition, consumers will find it increasingly important to consider steps to control their personal exposure to risk and to mitigate the damages and costs associated with severe weather events.”
The average claim payment per insured home rose 173 percent, to $626 from $229 over the span of 15 years—from 1997 to 2011—the report reads, and in 2011 claim costs per insured home increased 27 percent. The annualized rate of increase was 7.4 percent over the span studied.
IRC separately examined claims related to catastrophic events and those not related to catastrophic events. Trends in the average claim payment per paid claim for both groups were similar; claim severity increased almost 200 percent and ended the 15-year period with similar values: $8,077 for noncatastrophe-related claims and $7,553 for catastrophe-related claims. The trend in catastrophe-related claim severity was much more volatile from year-to-year, with dramatic increases and decreases over the study period, the report reads.
Trends in the number of paid claims per 100 insured homes were different. The frequency of claims unrelated to catastrophic events fell from 1997 to 2005. Since 2005, however, noncatastrophe-related claim frequency increased at an annualized rate of 2.9 percent. Catastrophe-related claim frequency, while much more volatile, remained fairly flat through much of the period, the report reads.
The study also found that catastrophe-related claims played a greater role in overall claim trends in the second half of the 15-year span. Catastrophe-related claims accounted for 25 percent of overall claim costs from 1997 to 2003, on average, but 39 percent of overall claim costs from 2004 to 2011, the report said.
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