2011 storms trigger home insurance rate hikes
Increases as high as 20 percent proposed
Consumers, already contending with the rising cost of gasoline, food, and other necessities, could now also face sharply higher home insurance premiums.
After several years of modest increases, insurance companies are raising rates to offset a big jump in claims related to damage caused by tornadoes, severe snowstorms, and Tropical Storm Irene last year, according to industry executives. The increases, which must be approved by the state, will likely affect most of the state’s nearly 2 million policy holders, and if approved, homeowners will see their rates go up when they renew or buy new policies this year.
“Homeowners rates are likely to go up a lot this year,’’ said Chris Olie, chairman of Bunker Hill Insurance. in Boston. “It was a wake-up call from Mother Nature.’’
Bunker Hill, plans to raise its rates by 11.9 percent this year. Another insurer, The Andover Companies, plans to raise rates an average of 9.3 percent.
Commerce Insurance, the second largest home insurer in the state, is raising rates by 8.5 percent; Safety Insurance, by 10 percent. and Holyoke Mutual, a smaller carrier in Salem, has applied for a 20.3 percent increase.
The increases mark a sharp departure from the past few years, when insurance rates remained generally stable. The average annual premium on a traditional homeowner insurance policy rose less than 1 percent a year from 2007 to 2010 to just under $1,100, according to the state Division of Insurance.
But insurance companies say they need larger increases now because they were hit so hard by wild weather, including a brutal winter a year ago that caused widespread damage from ice and snow; deadly tornadoes that swept through Western and Central Massachusetts in June; Tropical Storm Irene that caused flooding and wind damage in August; and an early snowstorm that downed trees and power lines across the state in October.
Andover Companies, for instance, said it lost $50 million on home insurance in the state last year - more than it earned on Massachusetts policies in the entire previous decade.
“I’ve never seen results as bad as they were last year,’’ said Donald Vose, vice president for underwriting for Andover. “Just about everything that could go wrong did.’’
The damage wasn’t confined to Massachusetts. Many states were pounded last year by tornadoes, hurricanes, wildfires, and other natural disasters, driving rates up nationwide. For instance, Chubb Corp., the fifth largest home insurer in Massachusetts, said it is generally requesting rate increases of 5 percent to 6 percent across the country this year, compared with 3 to 4 percent last year.
Chubb, of Warren. N.J., declined to comment on how large an increase it is seeking in Massachusetts.
Some insurers may seek more modest increases, especially if they raised rates in the past. Liberty Mutual, the third largest home insurer in the state, said it plans to raise rates by 4.5 percent this year after raising them 8.8 percent in 2011.Arbella, another major home insurer, plans to increase rates by 6.1 percent, after raising them nearly 6 percent last year.
Not every rate increase can be blamed solely on last year’s storms. The state’s largest home insurer, Massachusetts Property Insurance Underwriting Association, which provides insurance to homeowners who cannot get it elsewhere, has requested permission to raise rates by an average of 7.4 percent. Robert Tommasino, the general counsel, said the association, known as the Massachusetts Fair Plan, applied for higher rates because it had not received an increase in six years and new hurricane models show the state is more vulnerable to damage than previously thought.
The state Division of Insurance is holding hearings on the proposal.
Attorney General Martha Coakley is fighting Fair Plan’s proposed increase. Fair Plan earned more than $200 million from 2007 through 2011, she said, and the rate increase would boost its profits by more than $15 million a year. Coakley said her office has also begun to question rate increases by other firms.
“These are pretty steep increases,’’ said Coakley, who represents ratepayers. “Any time we see increases like this, we think it is fair to ask what is the basis for them.’’
A consumer advocate also called on the state scrutinize all home insurance rate increases. “Everything else in our economy is not going up like this,’’ said Deirdre Cummings, legislative director for the Massachusetts Public Interest Group in Boston.
The Division of Insurance does not normally hold hearings on rate increases for home insurance, except for those proposed by the Fair Plan, the insurer of last resort. But companies are required to file any rate changes with the agency in advance.
Although the insurance commissioner rarely rejects any increases outright, companies sometimes modify proposals after the agency challenges the basis for the request. Some of the latest increases have already been finalized, including those of Commerce and Safety, but others are still “under review,’’ said Dan Rosenfeld, a spokesman for the Division of Insurance.
The agency said the filings are considered confidential until they are finalized and would not comment on them.
Industry executives and regulators say consumers have options to trim insurance bills. They can increase deductibles, shop for better rates or group discounts, and talk to companies or agents about additional discounts. Some firms offer discounts if customers buy auto and home insurance from the same insurer or take steps, such as installing alarm systems and storm shutters, to protect their homes.
“If you’re seeing a rate increase, some of these options could mitigate that,’’ Insurance Commissioner Joseph Murphy said. You might, he added, even end up with a small decrease.