Bad weather and West Virginia laws blamed for increases in rates

The Herald-Dispatch (Huntington, WV)

HUNTINGTON — When Darren and Peggy Shobe found their Kenova home looted in April 2003, they had no idea they would lose more than what the thief stole.

The Shobes scrambled to find another homeowner’s insurance policy after making a $3,500 claim for their purloined property.

Even though the claim was the first they had ever made, the Shobes were dropped this April from their policy after they were deemed a high risk by their insurer.

An exhaustive search that involved eight different insurance agents ensued to find another insurer before another insurance company agreed to insure the Shobes – at a premium three times higher than what they were paying.

While they are insured, the Shobes said they don’t know if they would ever turn in a claim again no matter how high the damage.

“I don’t think I would turn in a claim,” Darren Shobe said. “That was our last chance to get insurance in West Virginia.”

Many homeowners across the state have seen their homeowners rates increase drastically over the past year as the insurance industry lobbies state government for reform.

A July 2004 report by the West Virginia Insurance Commission attributes losses by insurance companies due to hail and windstorm damage in 1998 and 2002 to heavily contributing to this year’s increase people have seen.

Insurance companies, however, point to state laws that set West Virginia apart from other states and, according to some, make the state hostile to insurance companies.

Indeed, several insurance providers have temporarily stopped writing policies for periods of time over the past two years. Currently, State Farm Fire and Casualty Co. is not writing new auto and homeowner insurance policies in the state.

John Canfield, a lobbyist with State Farm in West Virginia, said certain laws in West Virginia need to be changed for State Farm to start writing new insurance policies in the state. West Virginia is the only state where State Farm has stopped all new policies from being written on both auto and homeowners insurance, he said.

Canfield said State Farm has had a $102 million loss in its homeowners policies in West Virginia between 1994 to 2003.

Yet, in figures Canfield presented to the state Legislature in June, the average claim in West Virginia is comparable, even less for some, than surrounding states.

In 2002, the average claim made by a West Virginian was $3,618, lower than Kentucky or Maryland and only $7 higher than Ohio. According to the same statistics presented by Canfield, the average home in Huntington cost $654 per year to insure while one in Ashland cost $642. A home in Martinsburg would cost $567 while a home in Frederick, Md., cost $348.

State Farm‘s decision to stop writing new policies in West Virginia was based on the accumulated losses over a long period of time in the state. Canfield attributed much of these losses to two laws on the state books restricting insurance companies:

Nonrenewal laws that don’t allow an insurance company to drop a policy holder if they have been with the company for more than four years.

Valued policy laws that apply only to fire losses that require an insurer to pay the full replacement cost of a home even if the home has deteriorated and wasn’t worth the assessed value.

These laws allow a small minority of customers to abuse the system, Canfield said, submitting claim after claim once they reached the four-year limit.

“What it results in is a small number of policy holder with multiple claims,” Canfield said. “The company can’t do anything about it. You have a large number of policy holders who end up subsidizing multiple claims submitted by a few policy holders.”

One insurer said the types of claims they are seeing in West Virginia contribute to a more strict homeowners environment.

Allstate Corp. reported more fire damage claims with higher payouts in West Virginia in the past two years than in surrounding states.

According to a report by the trade group West Virginia Insurance Federation, the average fire claim in 2003 in West Virginia was $24,386, which is $5,000 higher than the next highest state, Kentucky. The report included Ohio, Maryland, North Carolina, Ohio, Pennsylvania, Virginia and Tennessee.

The number of fire claims is significantly higher in West Virginia than in other states, the WVIF reports, with Allstate receiving 20 percent more fire claims filed in West Virginia than in Maryland and Virginia and 16 percent more fire claims than in Kentucky, North Carolina, Ohio, Pennsylvania and Tennessee.

Yet these claims are made by only a handful of people, with 86 percent of Allstate‘s policy holders having no claims in the past three years, 12 percent with only one claim in that time, and 2 percent with two or more claims.How the state and legislature will proceed in addressing the insurance laws remains to be seen, said West Virginia Insurance Commissioner Jane Cline.

The state legislature took a step in the right direction by creating an insurance fraud unit to investigate bogus claims, she said. The next step will have to balance consumer protection with the needs of the industry, she said.

“What we have to determine is what is the appropriate amount of consumer protection and what allows companies to be profitable,” Cline said.

Some consumer groups said West Virginia should look at models from other states in reforming insurance. California saw homeowner’s insurance rates drop once voters adopted regulations to roll back insurance prices and make the process of raising rates more public, said Doug Heller, executive director of the California-based Foundation for Taxpayer and Consumer Rights.

Proposition 103, passed by California voters in 1988, mandated a rollback in insurance rates by 20 percent and public notices for any filings for rate increases.

“It is a very straight-forward law. It sets up how an insurance company should be regulated,” Heller said. “It develops regulations to make sure the rates are not excessive.”

West Virginia, however, doesn’t have the buying power of larger states, such as California, making it harder to regulate the insurance industry, he said.

“That is why in a small state, lawmakers have to stand up to insurance companies,” Heller said. “West Virginia isn’t as vital to the huge corporations, so they play games.”

While the insurance commission considered measures such as Proposition 103, the same measures might not translate to West Virginia, Cline said. Making the environment in the state even more restrictive could have negative consequences, she said.

“We need to work with industry to make it more stable for them to do business as opposed to making it harder for them to do business,” Cline said. “All those additional expenses will come back to the policy holders.”

Consumers who have suffered the increased expenses in insurance hope something is done. The Shobes said they considered leaving the state because of the insurance.

“If this is the way they treat residents, I don’t know if I want to be here,” Peggy Shobe said.

Loss ratio and changes in insurance rates

Loss ratio is expressed as a percentage of the profits from premiums that are paid out to cover property damage and losses. The chart shows what State Farm Fire and Sasulaty Co. experienced with direct losses incurred off of policies in West Virginia. According to the report, combined with other expenses, State Farm lost money in the state every year at least since 1997. State Farm stopped writing new policies in 2002.
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Contact Scott Wartman at: [email protected]