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The party’s over on home rates

By Jay MacDonald ·
Tuesday, July 12, 2011
Posted: 9 am ET

Talk about irony: It is entirely conceivable that we will look back on the Great Recession as the good old days -- of homeowners insurance rates, that is.

Despite a passing nod to the recession that saw a rare 3.8 percent decrease in national average premiums to $791 in 2008, homeowners insurance rate averages rose to $807 in 2010 and appear on track to meet or exceed the 2007 decade peak of $822.

As occasional readers of this blog are aware, the storm clouds of rising home insurance rates have been gathering for the past 18 months. Here's why:

Last year, the risk modeling industry started redrawing and expanding the nation's hurricane maps based on 2008's Hurricane Ike and other nonconforming storms that wrought havoc as far inland as Chicago. And this was before the violent spring of 2011.

Then there is the ongoing debacle known as the National Flood Insurance Program, or NFIP, which continues to be deeply underfunded and overfumbled by a Congress that apparently does not live in flood plains. Their unwillingness to commit to a sustainable funding model caused State Farm, one of the nation's largest homeowners insurance underwriters, to discontinue its participation in NFIP last July.

Despite this warning shot, Congress is at it again, with a move to raise the limit on annual premium increases from 10 percent to 20 percent now on the table. BTW, flood map revisions, which are concurrently underway for obvious reasons, also may cost you plenty.

The rising fuel prices over the past 12 months are beginning to creep into the loss models as well. The Wall Street Journal reports that the price of gas rose 37 percent, copper 20 percent and plywood 8 percent during the past year.

Oh, and some insurers may not be in the best shape financially.

And all of that is the good news! The bad news, of course, is the global picture, which saw devastating natural disasters (earthquakes in Japan, Chile, Haiti and New Zealand; volcano eruptions in Iceland) and manmade horror stories (the BP oil spill; Japan's Fukushima Daiichi nuclear meltdowns).

Marsh & McLennan reinsurance brokerage says the insured losses of global catastrophes during the past 16 months, which it estimates at $100 billion, have already prompted some U.S. reinsurers to increase their property-catastrophe rates by 5 percent to 10 percent.

Expect those bills to trickle down to us, probably sooner than is comfortable.

The Wall Street Journal says State Farm, which raised homeowners insurance rates on average 7.3 percent last year, has jacked them up again this year in 18 states, some by more than 7 percent. Fireman's Fund admits it has bumped its rates overall; some Pennsylvania policy holders saw their premiums jump by 33 percent last year. PURE risk management popped rates to its well-to-do Florida clientele by 11 percent this year.

Here in Florida, we've been wrestling with what to do. Homeowners insurance companies insist they need to raise rates to survive in this risk-prone neighborhood. If we grant them the increases they want, they will hit like a hurricane on those least able to withstand it in a state already drowning in unemployment and foreclosures. If too many insurers pull up stakes, it only means less competition for those that remain.

What to do, what to do. Any ideas?

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