While Home Prices May Be Falling, Insurance Premiums Are on the Rise

Wall Street Journal - May 26, 2011

By CHAD TERHUNE And ANNAMARIA ANDRIOTIS

Already plagued by stubbornly low home prices, homeowners soon may be facinganother blow: rising insurance premiums.

After five years of relatively stable premiums, some of the country's biggestinsurers have raised rates—or say they plan to. Premiums vary by state, but lastyear, State Farm Mutual Automobile Insurance Co. says it increased homeownersrates 7.3% on average and, this year, has raised them in 18 states, including afew by more than 7%. By contrast, it cut rates in just two states.

In Florida, upscale insurer PURE Risk Management raised premiums 11% this year. Fireman's Fund Insurance Co., a subsidiary of Allianz SE, saysit has started to raise premiums in some areas. For some Pennsylvaniahomeowners, premiums shot up 33% last year.

For homeowners, the increases may seem counter-intuitive. Why are they payingmore to protect a house that may have lost significant value? Insurers saypremiums are partly based on rebuilding costs, not on a home's appraised marketvalue. When energy and building-material costs rise, insurers sometimes raisepremiums, said Mike LaRocco, chief executive of Fireman's Fund Insurance. Evenwith the recent decline in commodities prices, gasoline is up 37% in the pastyear, copper is up about 20% and plywood is up around 8%.

There may be more premium increases on the way, experts say, given the risingtoll of natural disasters, including recent tornadoes and extreme weather in theU.S. and the earthquake and tsunami in Japan in March.

New risk models also are causing insurers to reassess rates, said PUREPresident and CEO Ross Buchmueller. A new hurricane model used widely across theindustry forecasts a higher "wind risk," even for homes far from the coasts,driving premiums higher.

Federal flood-insurance prices may rise as Congress looks to erase theremaining $18 billion deficit from Hurricane Katrina. One congressional proposalwould raise the limit on annual premium increases to 20% from 10% and make itharder for the most flood-prone properties to get coverage. The average floodpremium is about $600 annually; rates go to nearly $6,000 for the highest-riskcoastal properties, the National Flood Insurance Program says.

All this may be a shock to homeowners, who have gotten used to premiums keptstable by the absence of big storms and costly disasters since Hurricane Katrinacaused insured losses of more than $45 billion in 2005. The recession anddecline in home construction also sapped demand for insurance, according toindustry researcher Insurance Information Institute. The average annual premiumfor homeowners' insurance fell 3.8% to $791 in 2008 from 2007, Institute figuresshow. It estimates the average premium rose to $807 last year.

There may be little home owners can do, beyond the usual shopping around.Jack Powers, an independent agent at Gulfshore Insurance in Naples, Fla., sayssome of his customers face rate increases of 20% or more. Still, he advises manyof them to swallow the increases. The alternatives, he says, are smaller,unrated insurers that may not withstand a storm financially.

Roofing rip-offs: Beware of scams, shoddy contractors

Problems with roofers plague consumers across the country. One in three Angie's List members who took an online poll and had roofing work done say they had a problem with their contractor or developed an issue down the line. Of those who detailed their problems, 68 percent mentioned shoddy work as a problem. Others cited trouble with roofing contractors who overcharged them, lacked a license, or took their money and ran.

News reports and attorneys general also warn consumers to be wary of roofing fraud and scam artists. In Jefferson Parish outside New Orleans, for example, a father and son were recently jailed on more than 50 fraud and theft charges for an alleged roofing scam targeting senior citizens.