State Farm boosts rates on homes Insurance increase in Maryland to average almost 8%

'Allstate opened the door'

Company blames rise on damage claims from winter storms

September 11, 1996|By Dana Hedgpeth | Dana Hedgpeth,SUN STAFF

State Farm Insurance Co., the state's leading insurer of homes, is hitting its 450,000 Maryland homeowners with annual premium increases averaging almost 8 percent statewide.

The company's rate rise translates to an average of about $24 per home, but varies by area and other factors.

State Farm's increase follows a recent move by the state's second-leading home insurance company, Allstate Insurance Co., with about 175,000 homeowner policies, to raise its yearly premiums by an average of about 17 percent statewide, or about $51 per home.

Earlier this year, Allstate raised annual rates for its 473,000 Maryland car-insurance clients by about 5.5 percent statewide -- including increases of more than 70 percent in parts of Carroll and Frederick counties, rises of more than 59 percent in parts of Harford and Baltimore counties, and a decrease in the southern part of Baltimore of more than 29 percent.

Industry experts and state officials say the rate increases in homeowners insurance will set the lead for even more insurance companies to follow with rate increases.

"Allstate opened the door by jumping out and taking such a large increase in its rates, and now State Farm is coming on in and stepping on their heels -- and they won't be the last ones," said Bob Hunter, insurance director of the Consumer Federation of America in Washington. "You can predict a significant part of the market will jump on the increase bandwagon and raise rates anywhere from 7 to 15 percent."

Already, officers at the state's third-ranked home insurer, Nationwide Insurance -- which has about 155,000 Maryland homeowner policies -- say they may file a statewide increase of as much as 5 percent by the end of the year.

Echoing Allstate officials, a State Farm spokesman said that the company's rate increase results from increased damage claims after the last two winters' ice and snow storms.

"When you have a winter storm you anticipate snow and water damage, but you can never know how much," said Charles Ingram, a spokesman in State Farm's regional office in Frederick. "But over the past five years, we've been getting a much higher increase in claims from winter storm damage than our premiums have shown. That plays a big part in having to raise rates."

But Hunter, a former insurance commissioner in Texas, says he doubts that one winter storm or even a few are enough justification for raising rates. The heart of the problem, he says, is that there's too little competition in the industry.

"I think they may be taking advantage of ice storms that have happened over the years and trying to make a big rate increase for the small homeowner," he said. "If there was a really competitive market, small companies would jump at this chance and say, 'Hey, look at us, we're holding steadfast to our rates unlike those big guys. Come try us.'

"But it's such a clubby industry where they all sit on the same boards that discuss rate changes, and they all work together. That leaves a huge tendency for most companies to follow the leaders -- Allstate and State Farm."

The State Farm premium increases -- which go into effect Oct. 15 for new policies and Dec. 15 for renewals -- average about 7.7 percent statewide. The rises vary from about 6 percent for Howard and Anne Arundel counties to about 8 percent for Baltimore City, according to the company's filing with the Maryland Insurance Administration (MIA).

State Farm premium rises for renters' insurance and condominium owners will range from about 9.5 percent in Baltimore City to about 11.5 percent in Howard County, the state filing said.

The MIA currently is reviewing the State Farm rate increases, but they can be put into effect without state approval.

State Farm's last rate increase, about 3.1 percent statewide, was in 1995. But in papers filed with the state, the company contends that it lost money in 1994 and 1995 in the home insurance business in Maryland.

In 1994, State Farm earned about $80 million in premiums and paid out about $108 million in claims and expenses, leaving it in the red for its homeowners line by about $27.7 million, its state filing said. In 1995, the company lost about $12.5 million in homeowners' claims and expenses.

State officials already appear to agree that State Farm needs to raise its rates.

"During the '90s there's been an explosion of storms and catastrophic losses, which have created a real legitimate reason for homeowner insurance companies to raise their rates," said Alan Clark, an actuarial specialist at the state insurance agency.

The actual rate changes among the top insurance companies in the state vary widely by company, area, housing values and other circumstances.

For a typical $200,000, 10-year-old frame house in Howard County, for example, State Farm actually is proposing dropping its annual homeowners insurance rates, from $442 to $421 a year. After its recent rate increase, Allstate's rate for the same house would be $467. Nationwide's rate at present is $351.

"The rate changes spur most people to shop around, and those who do may find the company that takes the business from the State Farm and the Allstate and offers lower rates," said Don Preston, regional manager of the Alliance of America Insurers, a nonprofit association for the property insurance industry.

"There's no easy answers to give homeowners about their rates rising other than the company bears the root of the burden to share the risk of covering a big group of people," he said. "That may mean raising the rates to give the homeowner the coverage they need."

Pub Date: 9/11/96

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