Homeowner questions huge jump in home insurance premium

An unusual increase highlights methods for premium calculation

  • Margaret Fulcher owns a rowhouse in Baltimore that has had skyrocketing insurance premiums recently. The replacement value on her home went from about $160,000 to more than $500,000 in a year.
Margaret Fulcher owns a rowhouse in Baltimore that has had skyrocketing… (Lloyd Fox, Baltimore Sun )
January 31, 2013|By Steve Kilar, The Baltimore Sun

In the six months that have passed since Margaret Fulcher received her most recent homeowners insurance policy, she has moved on from being shocked to simply incensed.

The premium to fully insure her Baltimore rowhouse increased fourfold last year — to a sum she can ill afford and one that she thinks does not accurately represent the cost of replacing her home.

"This is a case of homeowners insurance underwater," said Fulcher, comparing her premium to a mortgage that is worth more than the home to which it is attached.

Although Fulcher's skyrocketing increase — from $861 to $3,383 — is an extreme, premiums throughout Maryland have been increasing in recent years. It's a result of more payouts and higher building costs, experts say. And many homeowners might want to begin setting aside money to pay home insurance bills, which show no sign of leveling off.

"How many more people are they doing this to?" asks Fulcher, 60, who gets by on disability income after suffering several strokes in her 40s.

Fulcher's insurance story begins with the August 2011 earthquake. Part of her roof pulled away from the wall, causing a severe leak. She had the leak fixed, to the tune of $2,000 out of pocket (her policy didn't cover earthquake damage), but a claims agent came out and inspected her home.

After that inspection, she received a letter. Her three-story brick house near Little Italy and the Perkins Homes would cost more than $563,000 to rebuild if totally destroyed, the letter said.

Before that, her home's replacement value was $167,000. Her insurer, Travelers, declined to comment on her case, citing privacy issues.

"This is not a half-million dollars' worth of house," Fulcher said. "Whatever it would be replaced with would not cost half a million, you can bet on that."

'No expensive stuff'

She bought the house, at East Baltimore and North Caroline streets, from the city more than 30 years ago. It's big, about 3,400 square feet, but it's not fancy. The main kitchen area, on the first floor, still has harvest gold-colored appliances. The bathrooms are not bedecked in granite or marble. There is no heat in the stairwell.

"There is no expensive stuff in here," Fulcher said. "All I did was put down carpet because it was all tile. ... I have done nothing to it."

Built in 1920, according to tax records, the house's street level was designed as a storefront, as were the rest of the buildings on her block, which has long been on the cusp of gentrification. The state values the home for property tax purposes at less than $350,000, and Fulcher says that comparable homes in her neighborhood are selling for well under $300,000.

She refused to shell out the new premium, but it was paid by her mortgage company, so now she owes the money to her lender. A review of the policy by the Maryland Insurance Administration determined that nothing was amiss, and now Fulcher is awaiting a hearing on the administration's decision.

In the meantime, she called two other insurance companies, she said, but was quoted similar rates. She feels stuck with the new, expensive policy, she said.

"I don't need a half-million dollars' worth of insurance," Fulcher said.

Premium factors

Homeowners insurance rates have gone up moderately in the past few years, according to the state insurance administration. The average rate for the most common type of policy in Maryland went up less than $100 between 2005 and 2010, according to administration records. In 2005, the average homeowner paid $696; in 2010, the average was $784.

Replacement cost — the factor that increased so drastically on Fulcher's house — is only one component insurance companies use to calculate rates, according to the administration.

The replacement figure does not encompass the value of the land on which the home is built but is intended to cover the expense, minus any deductible, to return the home to the way it was before the loss occurred. It is not supposed to take into account the market value of the home.

Prior claims, the manner of construction, a home's age and the adequacy of municipal fire protection are other considerations insurance companies use to calculate rates, according to the insurance administration.

Plus, there are variables about the policy itself that can influence the premium, including the amount of coverage required by a mortgage lender and the deductible, the administration said.

At State Farm, a major insurer of homes in Maryland, rates are "based on each state's claims experience," said Anna Bryant, a regional spokeswoman for the company. "We take into account claims during previous years as well as projected losses, expenses and premiums," she said.

Increasing claims amounts are driving the rise in premiums, said David L. Corum, vice president of the Insurance Research Council, a nonprofit supported by property and casualty insurance companies and their associations.

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