How hurricanes raise insurance rates
Your premiums could rise even if your home escapes damage during Hurricane Sandy.
This post comes from Annamaria Andriotis at partner site MarketWatch.
When Hurricane Sandy makes landfall this week it could cause as much as $1 billion in damage along the Eastern seaboard, by some estimates. The result could be widespread damage to homes, including torn-off roofs, broken windows and damage from fallen trees.
And even homeowners spared the worst of the storm might not get off entirely scot-free. Insurance agents say premiums may rise and coverage could be slashed for homes in affected areas, whether or not they file claims. "Even if you haven't been hit, (that) doesn't mean some of your neighbors haven't been adversely impacted by the storm and that could impact you," says Michael Barry, a spokesman for the Insurance Information Institute, which represents home insurers.
Homeowners insurance premiums have been on the rise for years. They average $1,004 this year, up 5% from a year ago and up 22% since 2007, according to the III. This is the first year the national average has cracked the $1,000 mark. Meanwhile, insurers in some states have already raised premiums by as much as 12% this year.
Insurers cite several reasons for the spike, including losses from claims filed in previous years and low returns on their investments.
But critics say insurers have more leeway to avoid hiking insurance premiums for the time being. The first half of this year saw a drop in catastrophic losses, which totaled $13.8 billion, compared with $24.4 billion during the same period a year ago, according to the III. The industry's overall net income after taxes skyrocketed during this period to $16.4 billion, compared with $4.8 billion a year prior.
Still, the risk of rising premiums or scaled-back coverage isn't off the table, especially as severe weather events rise in frequency in the Northeast. In the past 14 months, the region has been hit by Hurricane Irene and a severe October 2011 snowstorm -- and now there's Hurricane Sandy. "They're looking at changing weather patterns and saying this is changing the way we need to look at risk," says Scott Simmonds, an independent insurance consultant in Saco, Maine.
To avoid changes to policies, some independent insurance agents say they will recommend that clients not file claims from this storm. Spencer Houldin, the president of Ericson Insurance, an independent insurance agency based in Washington Depot, Conn., says he plans to tell clients who've filed two claims within the past three years to refrain from filing another one related to a natural disaster if they can afford to cover the costs for the repairs themselves. Otherwise, he says, there's a good chance their insurance company won't agree to provide coverage when their policy is up for renewal. (Even if they don't file, insurers could look to raise premiums anyway, says Barry.)
The type of coverage homeowners receive could also change. Some experts say if severe weather events persist in the Northeast, insurance coverage could begin to mirror policies in the Gulf Coast. Many basic homeowner insurance policies there have limited wind damage coverage or exclude it entirely. "As more of these events happen, the chances increase that policy structures will change," says Simmonds.
For its part, the insurance industry says that's an unlikely scenario for much of the Northeast for the time being. Barry says roughly 98% of homeowners insurance policies in New York are provided by private insurers. In some Gulf Coast states, in contrast, many homeowners are now covered only by state-run property insurers of last resort.
So what can homeowners do? If the loss sustained by Hurricane Sandy is too large to realistically cover on their own or if it's the first damage in years, they should file a claim with their insurer, experts say. Keep in mind that insurers can't raise premiums or drop coverage until a policy is up for renewal. And even then, in many states they'll need approval from the state's insurance department before they can do so.
If premiums rise, homeowners can avoid that hit by increasing their deductible. But that means they'll have to pay more out of pocket when they file future claims.
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