In late 2001 and again in early 2003, CFA surveyed the insurance departments of the nation to determine the size and reason for homeowners insurance price increases.  40 states responded to the first request and 33 states responded to the latter request.

According to the data they supplied, homeowners’ Insurance rates rose by a median 3% in 1999, 4% in 2000, 7% in 2001 and 13% in 2002.  The size of the increase in 2002 ranged from 4% in Oregon to 57% in Texas and 33% in Iowa.  Exhibit 1, attached, shows the variation in rate change by year, by state.

Few states have undertaken specific reviews of the overall market to determine if home insurance rates are excessive. Texas just issued a report (“Summary Report for the Texas Legislature, 3/28/03) which says homeowners Insurance rates in that state are excessive by up to 25%.

The reasons given by the departments for the large increases shifted a lot over the slightly more than one year time frame of our requests.  In late 2001, the predominant reason for price increases was catastrophes, mentioned 16 times.  The next most mentioned reason was the drop in investment income the insurers suffered (7 times).  Next, mentioned 3 times, was that homeowners insurance had been a “loss leader” to try to secure auto and other coverages and now had to catch up.  Other items mentioned, one each, were mold, reinsurance cost increases, enhanced coverage and increased repair costs.  Interestingly, litigation and terrorism were not mentioned at all.

In early 2003, the reasons given for the large increase in homeowners’ insurance rates were quite different.  The leading cause of the price jumps mentioned was mold mentioned 11 times, followed by catastrophes mentioned 10 times.  Then came reinsurance price increase and investment income decreases mentioned 5 times each. “Loss leader” was mentioned 4 times as was the insurance cycle; 3 for repair cost increases; 2 for enhanced coverage and 1 each for the economy, litigation and terrorism.

“It is surprising that insurance commissioners do not see terrorism and litigation as important aspects of the homeowners insurance price increases, given the hype of these issues by the insurance companies,” said J. Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner.

Several states mentioned that their complaints had skyrocketed for this line of insurance (e.g., up over 3 times in California, up 55% in Nevada, 65% in Virginia and up “sharply” in Kansas and Kentucky).