Insurers shifting cost risk to homeowners
AD Quality Auto 360p 720p 1080p Top articles1/5READ MOREPettersson scores another winner, Canucks beat KingsThe insurers say they have had to take defensive measures to stay in business and pay claims as operating costs have climbed. “If you’re being overly generous in covering risks and you’re not taking in sufficient premium, it doesn’t make business sense,” said Richard Ward, chief executive of Lloyd’s of London, a large insurer of homes and businesses in the U.S. Yet some industry experts and consumer advocates say efforts by the insurers to increase profits, after years of taking losses on home insurance, are shifting more of the burden of repairs and reconstruction to homeowners. The cutbacks in coverage, consumer advocates say, have contributed to the slow recovery of the Gulf Coast from Hurricane Katrina and will most likely hamper recovery from the recent wildfires in California. “You have a different mentality at the insurance companies,” said Andrew Barile, a consultant who has spent his life in the industry. “They no longer worry about the public service aspect. They’re concentrating on the bottom line.” The bottom line has been good recently. The property insurance industry, including home, auto and commercial coverages, reported a record profit of $44 billion in 2005, even after paying $41 billion in damages from Katrina. The industry set another record for profit in 2006 at $64 billion. And as a second hurricane season is coming to an end without a hurricane hitting the coasts, 2007 is shaping up to be another lucrative year. The changes in insurance coverage have been gradual. They are spelled out in the revised policies. But few homeowners read their policies, and they are often unaware that coverage has been reduced until they are faced with making repairs or rebuilding their homes. In most of the country, reduced coverage is much more of a burden than rising premiums. PALMETTO BAY, Fla. – Charles R. Williams stood near the glass sliding doors in his home south of Miami and pointed out parts of the ceiling and walls that had crumpled after Hurricane Andrew ripped open the roof 15 years ago. The visible damage from that storm, one of the worst of the century, has largely disappeared. But Williams and homeowners nationwide are still feeling its effect in their pocketbooks. The storm stunned insurance companies, and, after paying out more than $22 billion in claims in inflation-adjusted dollars, they began rewriting policies to protect themselves as much as homeowners. They developed computer programs to limit payouts on claims. As a result, U.S. homeowners are having to make do with much less coverage at steadily rising prices. In Miami and other places along the coast, insurance prices have skyrocketed, deepening the national slowdown in home sales. Ten years ago, the average cost of home insurance was $455 a year. Today, it is an estimated $886 for much less insurance. Along the coasts, annual premiums on houses routinely run into the thousands of dollars. Contending that even those are not high enough for the risk they face, the insurers have canceled or declined to renew several million policies. Two years ago, the annual cost of coverage for Williams, a retired airline pilot, and his wife, a former flight attendant, rose more than 50 percent to $2,599, for about $250,000 in coverage. The insurers say they have tried to strike a balance that works for them and their customers. “What insurers have tried to do,” said Robert P. Hartwig, the president and chief economist of the Insurance Information Institute, a trade group in New York, “is to sell policies that provide people with coverage for the vast majority of losses they are likely to suffer at an affordable price. A policy that covered every peril would be unaffordable for many if not most people.” Before Andrew, the insurers sold home insurance as a loss leader and loaded the policies with lavish benefits to attract customers for their car insurance and to build up capital in their investment portfolios. “It was a kind of avuncular, sleepy line of business,” said William R. Berkley, the chief executive of W.R. Berkley, a commercial insurer in Greenwich, Conn. “Then losses started to outstrip even what investment income might have been able to make up.” 160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set!