INSURANCE TOPICS

Homeowners Insurance

Expenditures for Homeowners and Renters Insurance

The average homeowners insurance premium rose by 2.2 percent in 2007, following a 5.2 percent increase the previous year, according to a December 2009 study by the National Association of Insurance Commissioners. Florida had the highest average homeowners insurance premium ($1,534) in 2007. Texas, which had the highest average premium in 2006, moved to the no. 2 spot in 2007, with an average expenditure of $1,448, followed by Louisiana ($1,400). The average renters insurance premium declined by 3.7 percent in 2007, followed a 2.1 percent drop the previous year. Mississippi had the highest average renters insurance premium in 2007 ($250), followed by Louisiana ($248) and California ($231).

CONSUMER PRICES

The Bureau of Labor Statistics collects the prices of a fixed “basket” of consumer goods and services every month to compile the consumer price index. The price of all types of insurance is heavily influenced by the cost of goods and services paid by insurers to meet.

CONSUMER PRICE INDICES FOR INSURANCE AND RELATED ITEMS AND ANNUAL RATES OF CHANGE, 2000-2009 (Cont'd)

(Base: 1982-84=100)

	Used cars and trucks		Tenants and household insurance		Repair of household items (3), (5)		Legal services		Existing single-family homes
Year	Index	Percent change	Index	Percent change	Index	Percent change	Index	Percent change	Median price ($000)	Percent change
2000	155.8	2.5%	103.7	2.4%	111.6	4.1%	189.3	5.2%	$144	4.1%
2001	158.7	1.9	106.2	2.4	119.4	7.0	199.5	5.4	153	6.6
2002	152.0	-4.2	108.7	2.4	125.1	4.8	211.1	5.8	165	7.8
2003	142.9	-6.0	114.8	5.6	131.0	4.7	221.7	5.0	179	8.4
2004	133.3	-6.7	116.2	1.2	139.4	6.4	232.3	4.8	195	9.3
2005	139.4	4.6	117.6	1.2	147.4	5.7	241.8	4.1	220	12.4
2006	140.0	0.4	116.5	-0.9	154.7	5.0	250.0	3.4	222	1.0
2007	135.7	-3.0	117.0	0.4	161.2	4.2	260.3	4.1	219	-1.3
2008	134.0	-1.3	118.8	1.6	170.0	5.5	270.7	4.0	198	-9.5
2009	127.0	-5.2	121.5	2.2	176.0	3.5	278.1	2.7	173	-12.9
Percent change 2000-2009		-18.5%		17.2%		57.7%		46.9%		20.1%

(1) December 1996=100.
(2) December 1983=100.
(3) December 1997=100.
(4) Only includes insurance covering rental properties.
(5) Includes appliances, reupholstery and inside home maintenance.

Note: Percent changes after 2007 for consumer price indices and all years for the median price of existing single-family homes calculated from unrounded data.

Source: U.S. Department of Labor, Bureau of Labor Statistics; National Association of Realtors.

AVERAGE PREMIUMS FOR HOMEOWNERS AND RENTERS INSURANCE, UNITED STATES, 2000-2007

Year	Homeowners (1)	Percent change	Renters (2)	Percent change
2000	$508	4.1%	$175	2.3%
2001	536	5.5	178	1.7
2002	593	10.6	186	4.5
2003	668	12.6	192	3.2
2004	729	9.1	195	1.6
2005	764	4.8	193	-1.0
2006	804	5.2	189	-2.1
2007	822	2.2	182	-3.7

A 2006 Insurance Research Council poll found that 96 percent of homeowners had homeowners insurance while 43 percent of renters had renters insurance.
73 percent of homes were underinsured in 2002, compared with 66 percent in 2007, according to Marshall & Swift/Boechk. Homes were undervalued by 18 percent in 2007, down from 21 percent in 2006 and 35 percent in 2002.

AVERAGE PREMIUMS FOR HOMEOWNERS AND RENTERS INSURANCE, BY STATE, 2007

	Homeowners		Renters			Homeowners		Renters
State	Average premium (1)	Rank (2)	Average premium (3)	Rank	State	Average premium (1)	Rank (2)	Average premium (3)	Rank
Alabama	$905	12	$218	6	Montana	$700	28	$155	26
Alaska	861	14	175	17	Nebraska	807	18	143	34
Arizona	634	39	200	11	Nevada	695	30	201	10
Arkansas	762	22	201	10	New Hampshire	699	29	153	28
California (4)	925	11	231	3	New Jersey	776	20	172	18
Colorado	826	16	172	18	New Mexico	667	35	185	14
Connecticut	929	10	196	12	New York	936	9	218	6
Delaware	559	44	155	26	North Carolina	674	34	133	37
D.C.	1,089	4	190	13	North Dakota	771	21	112	41
Florida (5)	1,534	1	202	9	Ohio	540	45	162	23
Georgia	724	24	218	6	Oklahoma	1,054	5	223	5
Hawaii	850	15	209	7	Oregon	496	48	161	24
Idaho	422	50	150	29	Pennsylvania	689	32	144	33
Illinois	700	28	165	22	Rhode Island	950	8	182	15
Indiana	647	37	169	20	South Carolina	808	17	176	16
Iowa	610	41	132	38	South Dakota	618	40	113	40
Kansas	904	13	168	21	Tennessee	723	25	204	8
Kentucky	578	43	143	34	Texas (6)	1,448	2	226	4
Louisiana	1,400	3	248	2	Utah	505	47	138	36
Maine	596	42	142	35	Vermont	704	27	158	25
Maryland	692	31	147	31	Virginia	683	33	145	32
Massachusetts	1,023	6	223	5	Washington	506	46	170	19
Michigan	721	26	170	19	West Virginia	646	38	175	17
Minnesota	800	19	138	36	Wisconsin	491	49	122	39
Mississippi	1,019	7	250	1	Wyoming	656	36	149	30
Missouri	726	23	154	27	United States	$822		$182

(1) Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides “all risks” coverage (except those specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.
(2) States with the same premium receive the same rank.
(3) Based on the HO-4 renters insurance policy for tenants. Includes broad named-peril coverage for the personal property of tenants.
(4) California data were provided by the California Department of Insurance.
(5) Florida data exclude policies written by Citizens Property Insurance Corporation, the state's insurer of last resort, and therefore are not directly comparable to other states.
(6) The Texas Department of Insurance developed home insurance policy forms that are similar but not identical to the standard forms.

Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC does not rank state average expenditures and does not endorse any conclusions drawn from this data.

Source: © 2009 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited without written permission of NAIC.

AVERAGE PREMIUM FOR HOME INSURANCE POLICIES (1)

(1) Excludes state-run insurers.
(2) Insurance Information Institute Estimates/Forecasts.

Source: NAIC, Insurance Information Institute estimates 2008-2010 based on CPI data.

AVERAGE HOMEOWNERS LOSSES, 2003-2007 (1)

(Weighted average, 2003-2007)

Cause of loss	Claim frequency (2)	Claim severity (3)
Property damage
Fire, lightning and debris removal	0.52	$24,153
Wind and hail	2.13	7,163
Water damage and freezing	1.42	5,531
Theft	0.50	2,494
All other (4)	1.06	3,532
Liability
Bodily injury and property damage	0.14	15,854
Medical payments and other	0.08	3,055
Credit card and other (5)	(6)	927
Average (property damage and liability), 2003-2007	5.84	$7,368

(1) For homeowners multiple peril policies. Excludes tenants and condominium owners policies.
(2) Claims per 100 house years (policies).
(3) Accident year incurred losses, excluding loss adjustment expenses, i.e., indemnity costs per accident year incurred claims.
(4) Includes vandalism and malicious mischief.
(5) Includes coverage for unauthorized use of various cards, forgery, counterfeit money and losses not otherwise classified.
(6) Less than 0.01.

Source: ISO.

In the five period, 2003-2007, 5.8 percent of insured homes had a claim. Wind and hail accounted for the largest share of claims with 2.1 percent of insured homes having such a loss.

AVERAGE HOMEOWNERS LOSSES, 2003-2007, RANKED BY CLAIMS FREQUENCY (1)

(Weighted average, 2003-2007)

Cause of loss and type of coverage (2)	Claim frequency (3)	Claim severity (4)
Wind and hail (property damage)	2.13	7,163
Water damage and freezing (property damage)	1.42	5,531
All other property damage (5)	1.06	3,532
Fire, lightning and debris removal (property damage)	0.52	24,153
Theft (property damage)	0.50	2,494
Bodily injury and property damage (liability)	0.14	15,854
Medical payments and other (liability)	0.08	3,055
Credit card and other (liability) (6)	(7)	927

(1) For homeowners multiple peril policies. Excludes tenants and condominium owners policies.
(2) Types of homeowners coverages are property damage and liability.
(3) Claims per 100 house years (policies).
(4) Accident year incurred losses, excluding loss adjustment expenses, i.e., indemnity costs per accident year incurred claims.
(5) Includes vandalism and malicious mischief.
(6) Includes coverage for unauthorized use of various cards, forgery, counterfeit money and losses not otherwise classified.
(7) Less than 0.01.

Source: ISO.

THE TOP TEN MOST EXPENSIVE AND LEAST EXPENSIVE STATES FOR HOMEOWNERS INSURANCE, 2007

Rank	Most expensive states	Homeowners average premium (1)	Rank	Least expensive states	Homeowners average premium (1)
1	Florida (2)	$1,534	1	Idaho	$422
2	Texas (3)	1,448	2	Wisconsin	491
3	Louisiana	1,400	3	Oregon	496
4	D.C.	1,089	4	Utah	505
5	Oklahoma	1,054	5	Washington	506
6	Massachusetts	1,023	6	Ohio	540
7	Mississippi	1,019	7	Delaware	559
8	Rhode Island	950	8	Kentucky	578
9	New York	936	9	Maine	596
10	Connecticut	929	10	Iowa	610

(1) Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides “all risks” coverage (except those specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written. (2) Florida data excludes policies written by Citizen's Property Insurance Corporation, the state's insurer of last resort, and therefore are not directly comparable to other states.
(3) The Texas Department of Insurance developed home insurance policy forms that are similar but not identical to the standard forms.

Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC does not rank State Average Expenditures and does not endorse any conclusions drawn from this data.

Source: © 2009 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited without written permission of NAIC.

TOP TEN WRITERS OF HOMEOWNERS INSURANCE BY DIRECT PREMIUMS WRITTEN, 2009

($000)

Rank	Group	Direct premiums written (1)	Market share
1	State Farm Mutual	$14,737,236	21.6%
2	Allstate Corp.	6,837,286	10.0
3	Zurich Financial Services Ltd	5,066,034	7.4
4	Liberty Mutual Holding Co.	3,461,188	5.1
5	Travelers Companies	3,082,155	4.5
6	USAA Insurance Group	2,969,698	4.4
7	Nationwide Mutual Group	2,909,148	4.3
8	Chubb Corp.	1,772,268	2.6
9	American Family Mutual Insurance Group	1,460,618	2.1
10	Hartford Financial Services	1,122,780	1.7

(1) Before reinsurance transactions, excluding state funds.

Source: SNL Financial LC.

View Archived Tables:
TOP TEN WRITERS OF HOMEOWNERS INSURANCE BY DIRECT PREMIUMS WRITTEN, 2008

WHERE THE PREMIUM DOLLAR GOES, HOMEOWNERS INSURANCE, 2007

PREMIUMS EARNED:			$100
CLAIMS:
Property damage:
Fire and lightning	$23
Wind and hail	10
Water damage and freezing	12
All other property damage (1)	5
Theft	2
Subtotal		$52

Liability:
Bodily injury and property damage	$2
Medical payments and other	1
Subtotal		$3
Costs of settling claims	8
Total claims		$63

EXPENSES:
Commissions and other selling expenses	$22
General expenses (costs of company operations)	5
State premium taxes, licenses and fees	3
Total expenses		$30

Claims and expense total			$93

BOTTOM LINE:
Investment gain (2)			$10
Pretax income ($100-$93+$10)			15
Tax			5
Income after taxes			$10

(1) Includes vandalism and malicious mischief.
(2) Includes interest, dividends, and realized capital gains.

Source: Insurance Information Institute estimate based on data from ISO and the National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.

In 2007 claims accounted for $63 of every $100 of homeowners insurance premiums earned, up from $58 in 2006.
Expenses—including commissions, general overhead expenses, state premium taxes, licenses and fees—accounted for $30 of every $100 of premium earned.
Property damage and theft claims accounted for 82 percent of all claims payments. Liability claims accounted for 5 percent. The cost of settling these claims accounted for the remaining 13 percent of total claim costs.

WHERE THE REVENUE DOLLAR GOES, 2007

(Premiums and investments)

CAUSES OF HOMEOWNERS INSURANCE LOSSES

In 2007 almost 5 percent of insured homes had a claim, according to ISO. About 95 percent of those claims were for property damage, including theft. Changes in the percentage of each type of homeowners loss from one year to another are partially influenced by large fluctuations in the number and severity of weather-related events such as hurricanes and winter storms. There are two ways of looking at losses: by the average number of claims filed per 100 policies (frequency) and by the average amount paid for each claim (severity). The loss category “water damage and freezing” includes damage caused by mold, if covered. Every state except Arkansas, New York, North Carolina and Virginia has adopted an ISO mold limitation for homeowners insurance coverage, which allows insurers to exclude the coverage unless the condition results from a covered peril.

HOMEOWNERS INSURANCE LOSSES BY CAUSE, 2003-2007 (1)

(Percent of losses incurred)

Cause of loss	2003	2004	2005	2006	2007
Property damage
Fire, lightning and debris removal	31.74%	20.50%	23.04%	33.16%	42.07%
Wind and hail	25.32	50.07	46.56	29.04	17.43
Water damage and freezing	21.06	15.31	15.52	18.80	22.35
Theft	3.21	2.15	2.39	3.50	3.52
All other property damage (2)	11.74	6.94	7.30	9.37	9.32
Liability
Bodily injury and property damage	6.35	4.62	4.70	5.36	4.46
Medical payments and other	0.57	0.41	0.49	0.76	0.85
Credit card and other (3)	(4)	(4)	(4)	(4)	(4)

(1) For homeowners multiple peril policies. Excludes tenants and condominium owners policies.
(2) Includes vandalism and malicious mischief.
(3) Includes coverage for unauthorized use of various cards, forgery, counterfeit money and losses not otherwise classified.
(4) Less than 0.01 percent.

Source: ISO.

HOMEOWNERS INSURANCE LOSSES, 2003-2007 (1)

	Total homeowner losses
Year	Claim frequency (2)	Claim severity (3)
2003	7.08	$5,316
2004	6.59	8,105
2005	5.62	8,695
2006	5.19	6,982
2007	4.83	8,117
Average (4)	5.84	7,368

(1) For homeowners multiple peril policies. Excludes tenants and condominium policies.
(2) Claims per 100 house years (policies).
(3) Average amount paid per claim; based on accident year incurred losses, excluding loss adjustment expenses, i.e., indemnity costs per accident year incurred claims.
(4) Weighted average, 2003-2007.

Source: ISO.

Incurred homeowners losses increased by 38 percent from $30.8 billion in 2007 to $42.5 billion in 2008 on a net basis after reinsurance, according to Highline Data.

HIGH-RISK MARKETS

A myriad of different programs in place across the United States provide insurance to high risk policyholders who may have difficulty obtaining coverage from the standard market. So called residual, shared or involuntary market programs make basic insurance coverage more readily available. Today, property insurance from the residual market is provided by Fair Access to Insurance Requirements (FAIR) Plans, Beach and Windstorm Plans, and two state-run insurance companies in Florida and Louisiana: Florida Citizens Property Insurance Company (CPIC) and Louisiana Citizens Property Insurance Corporation (Louisiana Citizens). Established in the late 1960s to ensure the continued provision of insurance in urban areas, FAIR Plans often provide property insurance in both urban and coastal areas, while Beach and Windstorm Plans cover predominantly wind-only risks in designated coastal areas. Hybrid plans like Florida and Louisiana’s CPIC, provide property insurance throughout those states. It is important to note that in addition to windstorm risk, these plans routinely cover a range of other exposures, such as vandalism and fire.

TOTAL POLICYHOLDER GROWTH IN SELECTED STATE NATURAL CATASTROPHE INSURANCE PROGRAMS, 2005 AND 2009

	Number of policyholders			Change, 2005-2009
	2005	2009	Date	Percent	Number
Florida Citizens Property Insurance Corporation	810,017	1,029, 214	December 2009	27.1%	219,197
California Earthquake Authority	751,767	800,930	December 2009	7.0	49,163
Texas Windstorm Association	118,413	225,641	December 2009	91.0	107,228
Louisiana Citizens Property Insurance Corporation	134,169	132,000	July 2009	-2.0	2,169
Mississippi Windstorm Underwriting Association	15,252	41,073	July 2009	169.0	25,821
Florida Hurricane Catatastrophe Fund (1)	205	184	June 2009	-1.0	-21

(1) Reinsurance fund. Number of policyholders reflects insurance companies that reinsure through the fund.

Source: U.S. General Accountability Office.

GROSS WRITTEN PREMIUMS FOR SELECTED STATE NATURAL CATASTROPHES PROGRAMS, 2009

($ millions)

Program	Gross premiums written	Date
Florida Citizens Property Insurance Corporation	$2,181	December 2009
Florida Hurricane Catastrophe Fund (1)	1,500	June 2009
California Earthquake Authority	585	December 2009
Texas Windstorm Association	380	December 2009
North Carolina Underwriting Association	298	September 2009
Louisiana Citizens Property Insurance Corporation	230	July 2009
South Carolina Wind and Hail Underwriting Association	100	October 2009
Mississippi Windstorm Underwriting Association	80	July 2009
Alabama Insurance Underwriting Association	30	October 2009
New Jersey Underwriting Association	10	December 2009

(1) Reinsurance fund. Premiums collected may not be directly comparable to other programs.

Source: U.S. General Accountability Office.

TOTAL EXPOSURE IN SELECTED STATE NATURAL CATASTROPHE INSURANCE PROGRAMS, 2005 AND 2009

	Exposure ($billions)			Change, 2005-2009
	2005	2009	Date	Percent	Number
California Earthquake Authority	$240.0	$281.0	December 2009	17%	$41.0
Florida Citizens Property Insurance Corporation	165.0	406.0	December 2009	146	241.0
Texas Windstorm Association	27.5	68.0	December 2009	147	40.5
Louisiana Citizens Property Insurance Corporation	14.9	28.5	July 2009	91	13.6
Mississippi Windstorm Underwriting Association	1.9	11.3	July 2009	495	9.4
Florida Hurricane Catatastrophe Fund (1)	1,508.0	2,162.0	June 2009	43	654.0

(1) Reinsurance fund.

Source: U.S. General Accountability Office.