Homeowners Insurance – How Will Insurance Companies Work Around No Rate Increases?

Ask anyone in the insurance business in North Carolina and they will tell you the same thing.  Homeowners insurance in particular and property insurance in general is in a big mess right now.  Here’s why.  Rightly or wrongly, most every insurance company that sells home insurance in this state has come to believe that current rates are too low and that they are likely to lose money on most homeowners insurance policies that they write in NC.  In addition, the rates that the insurance companies can charge are regulated by the NC Insurance commissioner.  The Insurance Commissioner is an elected position and it seems clear that our current commissioner feels that raising homeowners insurance rates will jeopardize his political position and may even cost him his job at the next election.  When you put all of this together you have a volatile situation that can create problems for the insurance consumers in our state. 

It is no secret that insurance companies are clamoring for higher homeowners insurance rates here in NC.  They have been doing so for over a year and have yet to receive the rate increases that they feel they need to continue to operate profitably in our state.  Since they have not been able to get the rate increases that they need to be profitable, some have left the state, non-renewing entire books of business to get out of NC as quickly as possible.  Most have stayed here but have found other ways to keep their homeowners insurance book of business profitable, or at the very least are trying to find ways to hang on in the hopes that over time they will be glad that they found a way to weather the storm and stay in business in this state.

Watching a Fox News story about this problem, I was struck by the man in the street interviews that Fox News did.  The asked random strangers what they thought about the insurance companies needing higher rates and every single person replied that they insurance companies were charging too much already and that the insurance commissioner was doing the right thing in holding rates low.  I don’t blame people for thinking this if they haven’t studied the problem but in truth, this kind of thinking is what gives the Insurance Commissioner his power and allows him to take the stand against rate increases that is creating so much misery in the homeowners insurance marketplace right now.  If insurance companies can’t make a profit, then they will leave.  Those left behind will have less competition and will find a way to stay profitable by reducing coverage or applying other techniques to get the rates that they need to stay in business.  Much as we may wish it, we can’t squeeze water from a stone and if we continue to try and force insurance companies to lose money in this state we will see fewer and fewer choices for our home insurance in the future. 

So let’s take a look at four trends that are happening in the NC homeowners insurance marketplace and the impacts that they are having on insurance consumers in NC.

The first trend is that it is now very hard to buy a homeowners insurance policy for your home if you don’t also have an auto insurance policy to go along with it.  Stand alone home insurance policies are called monoline home policies.  While 2 or 3 years ago, most insurance companies would happily write a monoline home policy, now, there are almost no insurance companies left who will do this.  The reason this has happened is that insurance companies can make a nice profit on your auto insurance but not on your home insurance.  Therefore, they will only write the losing policy (home), if they also get to write the winner (auto).  If you have both, this is not a huge problem although it does narrow your choices as a consumer.  But it does have a negative impact on some senior citizens who have turned in their licenses and no longer drive.  Now they are losing their homeowners insurance and have no way to get a new policy in place. 

The next trend we saw and are still seeing is the use of consent to rate forms in order to both cancel existing homeowners policies and to increase the rates on some homeowners as much as 250% or more.  This is an extremely inefficient way to increase rates as it is done on a policy by policy basis and is like trying to hammer a nail in with a sledge hammer.  For a more detailed understanding of why consent to rate is a problem for consumers and insurance companies alike, please read my blog on this topic by clicking here.  Oh, and if you receive a consent to rate form in the mail from your insurance company, please don’t just sign it and send it in without first consulting an insurance professional.  Give us a call at 877-687-7557 and we will help you understand your options.

The third trend is a case where if the insurance companies can’t get the rates that they need to be profitable, then they will simply reduce the coverage.  We are now seeing most insurance companies increasing the deductibles on all homeowners insurance policies that they write.  Long gone is the option for a $250 deductible and with some insurance companies you may not even be able to choose a $500 deductible option.  In addition, some insurance companies have also changed their deductible clause to double your deductible amount if you have a loss from wind or hail.

wind damaged roofThe last trend, which isn’t here yet but is on the horizon, is also a reduction of coverage trend.  Insurance companies are now working on wording in their policies to change the coverage on your roof, in the event of a wind or hail claim, from replacement cost protection to actual cash value protection.  Right now, almost all policies will replace your damaged roof with a brand new one, even if your roof is almost completely worn out.  But in the future, this protection will be removed from your policy or at best, you will have to pay an extra premium to get replacement cost protection added back to your policy.  Actual cash value protection, the next trend for roof claims, will mean that the amount you can collect for your damaged roof will be based on the depreciated value of your roof.  If you have a 20 year roof that is 19 years old, then you can expect to receive 5% of what it will take to put a new roof on your house after it has been damaged by wind or hail.  That could put a whole lot of homeowners in a difficult financial position.

The message is that whether we like it or not, if insurance companies are unable to make a profit writing homeowners insurance in NC, then they will do one or more of three things.  Either quit and leave our state, or find ways to raise rates outside of the Insurance Commissioner’s control or reduce the protections provided by the homeowners insurance policy.  All of these choices lead to unpleasant surprises for the consumer.  It is time for our Insurance Commission to stop playing politics with homeowners insurance in NC and let the free market operate in a way that will keep insurance options and choices open for all consumers.

At Clinard Insurance Group we are dedicated to helping NC insurance consumers find the best possible options for their home, auto, life and business insurance.  We would be happy to answer any questions you may have.  You can reach us by phone, toll free,  at 877-687-7557.