IRC: Rapid Rise in Homeowners Claim Costs

The cost of homeowners insurance claims has been rising rapidly due to increases in claim severity and frequency, and insurers face significant challenges in responding effectively and managing the volatility of catastrophe-related claims, according to a new study from the Insurance Research Council (IRC).

Consumers should also consider steps to control their personal exposure to risk and to mitigate the damages and costs associated with severe weather events, the IRC said.

The IRC study of homeowners insurance claims found that from 1997 to 2011, the average claim payment per insured home countrywide rose 173 percent, from $229 to $626. In 2011 alone, homeowners insurance claim costs per insured home increased 27 percent.

Over the entire 15-year study period, the annualized rate of increase was 7.4 percent.

The IRC examined separately claim trends for claims not related to catastrophic events and those that were related to catastrophic events.

It found that trends in average claim severity (the average claim payment per paid claim) for both groups were similar in some respects.

For both groups of claims, countrywide claim severity increased almost 200 percent and ended the 15-year period in 2011 with similar values—$8,077 for noncatastrophe-related claims and $7,553 for catastrophe-related claims.

Significantly, however, the trend in catastrophe-related claim severity was much more volatile from year-to-year, with dramatic increases and decreases over the study period.

With respect to trends in homeowners claim frequency (the number of paid claims per 100 insured homes), the IRC said these were very different for the two groups of claims over the study period.

The frequency of claims unrelated to catastrophic events fell substantially from 1997 to 2005. Since 2005, however, noncatastrophe-related claim frequency has increased at an annualized rate of 2.9 percent.

Catastrophe-related claim frequency, while much more volatile, remained fairly flat through much of the period.

The study also found that catastrophe-related claims played a significantly greater role in overall claim trends in the second half of the 15-year period. Catastrophe-related claims accounted for 25 percent of overall claim costs countrywide from 1997 to 2004, on average, but 29 percent of overall claim costs from 2004 to 2011.

Check out this PC360 article for more on this story.

Also take a look at I.I.I. facts+statistics on homeowners insurance.

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