Homeowners InsuranceRates Are Rising In Some Places:
Here’s WhySpring 2012
Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief EconomistInsurance Information Institute 110 William Street New York, NY 10038Office: 212.346.5540 Cell: 917.494.5945 [email protected] www.iii.org
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Homeowners Insurance Rates May Be Rising Because…
Insurers expect severe weather; record claims likely follow
Investment income, which would lessen reliance on premiums, is down
Currently, premiums aren’t enough to cover expected claims and expenses
Insurers’ costs, especially for reinsurance, are rising
Severe Weather in Recent Years Caused Record-Setting
Insured Claim Payouts.Insurers Expect Claims in Future Years to Set New
Records, too.
3
Natural Disaster Insured Claims Payouts in the United States: 2011
4Source: MR NatCatSERVICE *Includes flood losses insured through the NFIP.
We can’t count on this in 2012
Insurers’ Investment Income (Mainly From Interest On Bonds) Is Down Significantly Since 2007.
Premium Rates Often Rise When Investment Income Slumps.
5
Property/Casualty Insurance Industry Net Investment Gain,1 1994–2011
$35
$43
$47
$52
$44
$36
$45 $4
9
$59
$56
$64
$32
$39
$53 $5
6$58
$52
$57
$25
$30
$35
$40
$45
$50
$55
$60
$65
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11
Investment gains in 2010-11 continued the rebound from year-end 2008. However, they are still weak in relation to gains in 2007,
especially considering that invested assets were 4.3% greaterat year-end 2011 vs. year-end 2007.
1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B.Sources: ISO; Insurance Information Institute.
$ Billions
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Since 2008, Insurers Have Paid Out More for Homeowners Insurance Claims and Operating Expenses Than They Received
In Premium Dollars.This Isn’t a Sustainable
Business Model.
7
8
Homeowners Insurance Industry Combined Ratio,* 2001–2010
*Ratio of (Claims + Expenses)/(Premiuums); Operating Ratio is Combined Ratio adjusted for Investment Income attributable to that line of business. A ratio over 100 means outgo exceeded income.Source: A.M. Best, Aggregates & Averages, 2011 P/C edition, p. 372.
95.6
105.
7
106.
7
118.
4
105.
6
94.9
91.7 96
.4
85.4
91.8
114.
7
103.
0
103.
7
116.
8
88.9
100.
3
98.4
98.2
109.
3
121.
7
80
90
100
110
120
130
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Combined Ratio After DividendsOverall Operating Ratio
It would seem that homeowners rates were inadequate in
these years
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Price Index for Residential Maintenance and Repair, Monthly, 2005-2012
Sources: U.S. Bureau of Labor Statistics, Producer Price Index; Insurance Information Institute.
154.
515
6.3
158.
315
9.4
159.
016
0.3
161.
916
2.9 166.
216
8.8
166.
116
8.7
168.
617
0.5
173.
417
5.0
176.
117
6.9
177.
417
4.6
173.
017
2.9
173.
317
3.2
174.
317
6.5
178.
618
0.1
180.
018
1.4
179.
618
0.1
180.
018
3.0
182.
118
3.2
184.
2 187.
819
0.2 19
4.7 19
8.2 20
2.7
201.
820
3.0
196.
719
0.1
184.
918
5.4
183.
618
2.5
183.
418
4.7
186.
518
5.5
187.
118
6.9
185.
818
7.0
187.
218
9.6
189.
319
1.6
193.
819
5.1
193.
819
3.5
194.
019
3.6
194.
619
5.5
196.
819
9.0
200.
9 205.
020
7.9
209.
920
9.6
210.
720
9.1
209.
720
8.4
208.
420
7.6
208.
821
0.9
214.
1
165.
4
150
160
170
180
190
200
210
220
Jan
05
Jul 0
5
Jan
06
Jul 0
6
Jan
07
Jul 0
7
Jan
08
Jul 0
8
Jan
09
Jul 0
9
Jan
10
Jul 1
0
Jan
11
Jul 1
1
Jan
12
The effect of repair costs on claims
depends on when the work is priced.12.7% increase in Sept. 2008
vs. Sept. 2007— during the “Great Recession”!)
Price Index
Prices for residential maintenance and repair rose by over 40% from December 2004 (through March 2012).
Annual Price Changes
2005: +7.9%2006: +7.3%2007: +3.3%2008: +7.8%2009: -3.9%2010: +4.3%2011: +7.1%
Global Reinsurance Rates Are Rising.
Reinsurance Provides Coverage and Is an ExpenseItem for Insurers.
Reinsurance Is One of Insurers’ Most Volatile Expense Factors.
10
11
Recent Significant CAT Losses, Reinsurer Share
Source: Insurance Information Institute from reinsurance share percentages provided in RAA, ABIR and CEA press release, Jan. 13, 2012.
Billions of 2011 Dollars
$0$5
$10$15$20$25$30$35$40
JapanEarthquake/
Tsunami (Mar2011)
New Zealand Earthquake (Feb
2011)
Thailand Floods(Aug - Nov 2011)
Chile Earthquake(Feb. 2010)
AustraliaCyclone/ Floods(Jan-Feb 2011)
Reinsurer SharePrimary Insurer Share
40% Reinsurance share of total insured loss
Reinsurers paid a high proportion of insured losses arising from major catastrophic events around the world in recent years
$0.4$4.0
$22.5$9.5
$15.0
$3.5
$37.5
$13.0
$6.0
$10.0
$7.9
$8.3
$2.2$2.8
$5.0
73%60%
95%44%
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Because Of Its Conservative Business Model, Insurers Have Maintained Financial Strength
Amid Great Economic Uncertainty. Adequate Rates
Are an Important Component of That Model.
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For Additional Information…
Homeowners Insurance Rates – Video: Dr. Steven Weisbart explains the five reasons homeowners rates are rising.
Facts and Statistics: Homeowners and Renters Insurance
Why Are Homeowners Insurance Rates Rising? – Background paper
How to Save Money on Your Homeowners Insurance – Consumer tips
www.iii.org
Insurance Information Institute Online: