Home Insurance Rates Up Sharply
Industry Blames Stock Losses, Storm Damage and Mold Claims
By Sandra Fleishman
Washington Post Staff Writer
Saturday, June 8, 2002; Page E01
Homeowners insurance premiums are up as much as 25 percent in some parts of the country this year and could double in some states, including Texas and California, because of the beating the industry says it took last year from the stock market, bad weather and sharply rising claims for mold damage. In Maryland and Virginia, there already have been double-digit percentage increases.
Insurance firms, which say they lose money on homeowners policies, also are not accepting new applicants in some places, including this region. Consumer activists say that will make it tougher for homeowners to find coverage and will lead to even higher rates.
Texas, California, Louisiana and Florida -- states with escalating mold-related claims, lawsuits and awards -- have been hardest hit both by rate increases and by insurers pulling back.
State Farm, the nation's biggest home insurer, plans to limit new customers beginning next month in the mid-Atlantic region, which includes Maryland, Virginia and the District.
"It boils down to a business decision," State Farm spokesman Phil Supple said. "We are making decisions in the whole region to adjust our business plan to bolster our financial stability."
J. Robert Hunter, insurance director for the Consumer Federation of America, said State Farm's action is important because the company is the biggest writer of homeowners insurance and "demand doesn't go down" if it pulls back. "So insurance is going to be harder to get, and it's going to cost more."
Homeowners insurance rates in Maryland were up about 12.6 percent in the first five months of the year, compared with 8.3 percent in 2001, said Maryland Insurance Commissioner Steven B. Larsen.
In Virginia, five of the top 10 insurers have been granted rate increases ranging from 10.7 percent to 25 percent.
Insurers in the District in most instances have sought to reduce rates or are asking for increases of 3 percent or less, said Insurance Commissioner Lawrence H. Mirel. "Possibly -- and this is pure speculation -- that could be because District rates have been higher in the past than they should have been," Mirel said.
Rate increases are not the only aggressive steps that insurers are taking, according to consumer activists. They are also tightening underwriting rules to weed out riskier customers or to limit coverage of those who have filed more than two claims in three years.
The changes in rates and underwriting have drawn protests from consumer groups and some regulators, who say they are "draconian." They say hundreds of thousands of policyholders could be affected.
The Consumer Federation of America last week asked regulators in all 50 states and the District to "carefully monitor" what the group describes as "the sudden surge in homeowners insurance prices and the remarkably tough underwriting restrictions suddenly imposed."
Industry spokesmen and some analysts say the insurance industry has little choice but to try to reduce exposure because of the falling value of investments and increasing claims, including hundreds of millions of dollars in mold-related claims. The number of claims from people who say mold is ruining their homes and sickening their families has increased sharply in some states.
When the stock market was doing well, insurers were willing to treat home insurance as "loss leaders," charging less than cost and offering policies freely because they wanted premiums to invest. Now that the stock market has tanked and claims have surged, taking on more customers at low rates doesn't work.
Last year "was the first year that the whole industry lost money . . . about $7.9 billion, and it was the first time our net worth fell below $300 billion since 1996," said Donald L. Griffin of the National Association of Independent Insurers.
"Homeowners insurance has been just a terrible, terrible business," said Charles Titterton of Standard & Poor's insurance-rating service. "While homeowners insurance is almost always a bad line," the industry's combined loss and expense ratio last year "was the worst performance in memory," he said.
Titterton predicted that rates nationally would increase 15 to 17 percent this year.
Hunter, of the consumer federation, said he is outraged at the insurance companies' justification for increases. "Taking a bath on Wall Street should not be reflected in rates," he said. "That would violate every actuarial principle I've heard of.".
Supple, the State Farm spokesman, said last year was especially bad for the insurance industry, with a combination of expensive disasters, costly mold claims and soaring rebuilding costs.
"The cost of rebuilding has gone up faster and more significantly in the past couple of years than we've ever seen," Supple said. "And while State Farm didn't have any Hurricane Andrews last year, it was the third-most expensive catastrophe year in our 80-year history."
State Farm lost $5 billion in 2001. In 2000, the Bloomington, Ill.-based company had a profit of $400 million.
Hunter blamed State Farm for holding down price increases over the years to boost business, and now raising rates to cover bad investments and "opening the door for massive price increases" by other companies.
State Farm, Allstate and some other insurance companies have stopped writing new policies in Texas, California and Louisiana in large part because of a large number of water-damage claims and because of the costly mold cases.
Florida may be the next state to lose insurers because of mold. Allstate says its mold-related claims there have risen 25 percent in the past year. State Farm says 700 mold-related claims were filed last year there, compared with 83 in 2000.
While mold claims have not increased in the Mid-Atlantic area, where State Farm is limiting new business, Larsen said he expects insurers to exclude mold coverage."
State Farm confirmed this week that to "help manage the pace of our growth" it will no longer take new clients in Maryland as of July 1.
"Maryland presents certain challenges that led us to determine that slowing our growth in homeowners would help us in our [financial] goal," Supple said.
Maryland last year banned linking insurance rates and coverage to homeowners' credit scores. Critics say the practice is unfair and discriminatory. Larsen said the Legislature was reacting to "an outcry from citizens and a spike of complaints."
State Farm also said that as of July 1 it will write new policies in the rest of its Mid-Atlantic region only when current customers leave, thus keeping its exposure here from growing.
State Farm says it has 31,000 policies in the District; 348,000 in Maryland and 413,000 in Virginia.
The goal, said Ric Adams, another State Farm spokesman, "is to maintain the same number of customers we have now. We want to fulfill the promises we made to our existing policyholders first" before taking on more obligations. Others say the move is consistent with State Farm's actions to improve its financial footing.
Deborah Rosen McKerrow, a spokeswoman for the Maryland Insurance Administration, said yesterday that the agency "had not received anything in writing" from State Farm about limiting new business, "although the company had called last week and indicated [that] possibility."
"Consumers shouldn't be concerned," McKerrow said. "There are other carriers who can provide the service. It's not like there's been a landslide and all of them are doing it."
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