Why is the cost of homeowners insurance increasing? Homeowners know that the price they pay for homeowners depends on factors like the type of construction, age of the home and the quality of local fire protection services. Nevertheless, it is the extraordinary number of catastrophies, the high cost of home repair, the aging of the U.S. housing stock and the emergence of mold claims that are pushing homeowners insurance rates upwards. Mold claims-which were virtually unheard of just a few years ago, cost home insurers more than $1 Billion dollars annually.
During the 1990's, the frequency and severity of catastrophies began to increase dramatically. Over the past 12 years, insurers paid out more than $100 Billion in catastrophe-related losses which is about 700 million a month-many times more than in prior decades! Catastrophes include well-known events such as Hurricane Andrew and the Northridge earthquake, but also hundreds of smaller disasters associated with tropical storms, tornados, wildfires, hail, ice and snow.
Homeowners rates in many parts of the country continue to rise because of the extraordinary costs associated with paying these claims. In fact, virtually every part of the country is now at risk for billion dollar disasters.
In dollar terms, the numbers are sobering. Homeowner carriers over the past decade paid out $1.18 in losses and expenses for every $1 they earned in premiums. In 2001 alone, carriers paid out $8.9 Billion more in losses and expenses than they received in premiums!
Losses in the homeowners insurance line from 2000 to 2002 are estimated at $19 Billion, rivaling the $20.3 Billion in insured property losses from the September 11 terrorist attack.
Every homeowner knows that home repairs don't come cheap and that home repair and rebuilding costs continue to rise. This phenomenon is a major driver of rising home insurance rates today.
Mold has recently emerged as the dominant cost driver in some states. Mold is certainly not new-it's been around for hundreds of millions of years, but the sharp rise in mold claims is definitely a 21st century phenomenon. Multi-million dollar jury awards, sensationalized reporting in the media and profiteering by some individuals have led to an explosion in mold claims and costs.