Insuring a home gets costlier

Maryland tab rises 15.7%

9% national rise expected

Industry's money woes grow

Consumers urged to raise deductibles, shop around

February 09, 2003|By Trif Alatzas | Trif Alatzas,SUN REAL ESTATE EDITOR

Maryland property owners paid an average 15.7 percent more for homeowner's insurance last year, according to state regulators, and industry experts said consumers can expect little relief in 2003 as financial problems continue to hamper the nation's insurers.

Prices are expected to rise an average of 9 percent this year across the country, according to the Insurance Information Institute, a trade group in New York.

Experts encourage consumers to shop around, raise their deductibles and equip their homes with smoke alarms and other disaster-prevention devices. They also said buying auto, life and other policies from the same insurance company could lower some costs.

The average U.S. homeowner paid $553 last year for home insurance. Costs are expected to rise to an average of $603 this year, according to the insurance institute. In 1999, the most recent year for which the institute has data, Maryland ranked 41st in the country in terms of premium costs with an average of $372.

The rising costs are attributed to a variety of factors, including a depressed stock market, lower interest rates on the bonds that many insurance companies hold, escalating home values and an industry that has been rocked by rising claims for weather-related catastrophes and mold claims.

"Losses have been increasing [for] a number of years, and so insurers are losing money in the homeowners' side and are raising prices and tightening their underwriting as a result," said P.J. Crowley, vice president of the Insurance Information Institute. "It is on the rise, but this comes after a period of time where insurance has been flat or has declined."

Industry statistics show the average homeowner claim in 2000 rose 10.5 percent to $4,168. Total homeowner losses in 2001 rose 22.4 percent to $26.8 billion.

Crowley also said some Maryland consumers could be paying more because of a new state law that forbids insurance companies from using credit scores when setting prices for homeowner's insurance. The insurance industry opposed the law, saying it would hurt consumers who have a history of paying their bills on time. Proponents said using the scores was unfair to consumers who use cash to pay their bills.

State insurance regulators said that, since Oct. 1, they have received about 200 complaints from homeowners about the rising costs. That compares with about a dozen complaints during the corresponding period before the insurance increases began in 2000.

Regulators said they have heard from several companies that requested increases last year and they had no choice but to grant the requests, given the industry's turmoil. And some companies have said they will stop issuing new insurance plans as the industry works out its financial woes.

That leaves consumers with fewer choices and rising premiums. In some cases, homebuyers are being forced to shop around for insurance companies that will issue new policies.

"We had a lot of growth and we had to slow it down," said Mary Flynn, a spokeswoman for Los Angeles-based Farmers Insurance Group, which stopped issuing new policies in Maryland in the fall. The company has 42,300 customers in the state after expanding here in 1999. "We need to make sure that our services are up to speed."

Seattle-based Safeco, which stopped issuing new policies in Maryland between July and October, said the total number of policies the company issued in the three months ending in December fell by about 8.2 percent. The company, which said it lost $37.2 million in the quarter from its homeownership division, also said it expects that business to be profitable by the end of next year.

Bloomington, Ill.-based State Farm Insurance, the nation's largest issuer of homeowner's policies with 22 percent of the market, said that, as of last month, the average price for its homeowner's insurance policies in Maryland was up 20.3 percent. State Farm is issuing new policies only when the company loses an existing customer in Maryland.

Members of the Washington-based Consumer Federation of America said State Farm's aggressive growth efforts several years ago forced smaller companies to match their lower prices. Once State Farm chose to stop issuing policies last year and raised rates to deal with mounting losses, the market went into its frenzy, a federation spokesman said.

"They put tremendous pressure on the market," said Bob Hunter, a spokesman for the federation. "Demand does not go down for insurance. You can't buy less insurance if costs go up, because the bank won't let you."

A State Farm spokeswoman said the company could not discuss the rest of the industry.

"The only thing I can say is that we're working hard to improve things that are within our control," Angela Mitchell said.

Lowering your homeowner's insurance

Shop around: Don't just consider price. Talk with friends and relatives. See how quickly and clearly the company answers your questions.

Raise your deductible: Doubling it to $1,000 if you can afford it could save 25 percent.

Buy auto and home policies from the same insurer: It could reduce a premium by 5 percent to 15 percent.

Discounts: Ask what security and other devices can be added or already are in the home and how much they can save.

Stay put: Some insurers will reduce premiums by 5 percent for customers who stay with them for three to five years and by 10 percent for six years or more.

Sources: Insurance Information Institute; Maryland Insurance Administration; local insurance agents

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