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Will twisters blow away rates?

By Jay MacDonald ·
Friday, May 27, 2011
Posted: 9 am ET

First, the good news: The end-of-the-world predictions of an octogenarian minister did not come to pass last weekend. The bad news? The violent tornadoes that followed may mark the end of homeowners insurance rates as we know them.

Property and casualty insurers were already bracing for record losses from the winter-spring double weather whammy when Sunday's massive tornado turned much of Joplin, Mo., into an apocalyptic moonscape. Two days later, equally devastating funnels tore a path of death and destruction from Kansas to Alabama.

A violent spring ravaged much of the Midwest and Southeast, including Joplin, Mo., pictured here. Will higher homeowners insurance rates follow?

A total of 1,151 tornadoes have touched down in the U.S. this spring, approaching the 1,282 total for all of 2010. This week's storms alone nearly doubled the twister-related death toll of 365, which was already six times as many tornado fatalities as the three-year average of 64, according to the National Weather Service.

If estimates from insurance risk adviser EQECAT are correct, the U.S. insurance industry could face $10 billion in weather-related losses in 2011, far exceeding the annual average of $2 billion to $4 billion.

If you add in the global losses from earthquakes in New Zealand and Japan, U.S. and foreign insurers could be on the hook for $55 billion by year's end.

Did I mention that hurricane season officially begins on June 1?

The NWS predicts 18 named storms this season. Although not a single hurricane made landfall in the U.S. last year, experts concede that's not likely to happen two years running.

Not surprisingly, insurance companies are already bracing shareholders for the financial impact of all this weird weather.

In an unusual move, Allstate announced it will disclose any monthly catastrophic losses that exceed $150 million. The "good hands" folks say they received 100,000 homeowners insurance claims totaling $1.4 billion in April alone.

Even the "Oracle of Omaha," Warren Buffett warned shareholders that Berkshire Hathaway, another major home insurer, would likely end the year in the red for the first time in nine years, due in part to earthquake losses of $1.07 billion in Japan and $412 million in New Zealand.

It doesn't take a Nostradamus to predict the impact these staggering losses are likely to have on our homeowners insurance rates. And it doesn't take a Warren Buffett to explain why the $500 billion U.S. property insurance industry is already hard at work rethinking its risk exposure (read: adjusting rates) in light of what seem to be ever-more-frequent weather anomalies.

My prediction: Those rate adjustments won't be heading downward.

What's yours? Do you expect your homeowners insurance rates to increase? Or have they already done so?

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June 02, 2011 at 12:49 pm

My Homeowner's insurance went up 40%...yes, 40% this year in January. Talk about sticker shock. I shopped around, and everyone wanted the same amount. I live in SC.