FIRES IN SOUTHERN CALIFORNIA AND FLOODS IN WASHINGTON STATE ARE LIKELY TO FUEL THE TREND THAT’S SURPRISING HOMEOWNERS
While wildfires rage through Southern California, and after floods mired parts of Northern Washington last month, Oregon has remained a natural disaster-free zone. Nevertheless, catastrophic events elsewhere probably will contribute to a trend that has staggered some local residents: a marked and sustained increase in homeowners insurance rates.
Many Oregon homeowners have been hit with double-digit rate increases. State Farm Insurance increased its Oregon homeowners rates an average of 21 percent this year, on top of a 21.5 percent increase last year. Seattle-based Safeco implemented a 4.6 percent average rate increase in 2003, after 5.9 percent and 5.8 percent increases the two prior years.
The local rate increases mirrored a national trend, with annual homeowners policy prices jumping 44.2 percent since 1995. The insurance industry was predicting another 8 percent average rate increase next year, said Krista Fischer, of the Insurance Information Service of Oregon and Idaho. That number might be pushed upwards by the California wildfires, which by some estimates have caused $3 billion worth of damage.
Although the average homeowners rate increases have been considerable, some customers have faced substantially larger increases, particularly those who have filed one or more claims. In recent years, some insurance companies have aggressively raised rates for customers with a history of filing claims.
“We’ve talked to people whose rates have gone up more than 100 percent,” said Larry Culbertson, of the Oregon Insurance Division. “We’ve gotten lots of calls.”
The insurance industry was hit hard by the economic downturn and the stock market declines of 2001 and 2002. The recession and the sweeping interest rate reductions have made it more difficult for insurance companies to attain the investment earnings they became accustomed to in the heyday of the stock boom.
Hurricanes and other epic natural disasters wrack up billions of dollars of claims. On a less cosmic level, the increasing cost of home repair also has become a factor. Lumber prices alone have increased 18 percent since 1992.
“Costs have skyrocketed,” said Fischer, of the Insurance Information Service of Oregon and Idaho, which is a nonprofit entity supported by the insurance industry. “Companies paid out $3.5 billion more in claims in 2002 than they took out in premiums.”
In June 2002, State Farm placed a moratorium on writing any new policies in Oregon and 15 other states. Concerned about stemming the losses, the company decided it didn’t want to face the potential liability that came with new business.
“Our number of claims has remained steady,” said Brian LeBerge, a State Farm spokesman. “But they’ve gotten more expensive and more complex.”
State Farm has since backed off that freeze on new business.
It was against that backdrop that some insurance companies began the most recent round of rate increases. In addition to the successive rate increases at State Farm and Safeco, Farmers Insurance Group raised rates 7.1 percent in 2001 and 3.3 percent in 2002.
Some companies also enacted strict internal rules in hopes of limiting their liability and costs. Among other things, some companies based their underwriting decisions on prospective customers’ credit histories. In a practice that has proven controversial with lawmakers, insurers run credit histories on would-be customers in the belief that a person with bad credit is more likely to file insurance claims.
The Oregon Legislature passed Senate Bill 260 in the waning days of the last session, prohibiting insurance companies from using policyholders’ credit information to raise customers’ premiums or cancel policies.
Some insurance companies also got much more aggressive about raising rates of customers who file claims. The Insurance Division’s Culbertson said some companies began implementing what he called “claims surcharges” against customers as early as 1999.
Industry officials argue that companies have a right to raise rates or reject customers who file multiple claims.
“Homeowners insurance is intended for catastrophic loss,” Fischer said. “It is not designed as some sort of maintenance contract.”
Raising rates based on a person’s claims history is commonplace in the auto insurance business. The practice is newer and more controversial in the homeowners arena.
“Insurance companies are punishing customers for having the gall to use their product,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica, Calif. Customers who file claims “are going to have this scarlet letter, they’re on a blacklist.”
The large insurance companies share information on policyholders and their claims histories, which can make it difficult for some to find affordable coverage.
“We’ve seen over 100 percent rate increases in one year for people who have filed multiple claims,” Culbertson said. “And the real difficult thing is, if you’ve had a claim, you don’t have anywhere else to go. Other insurance companies won’t take you.”
Contact Jeff Manning: 503-294-7606; [email protected]