The cost of homeowners insurance claims has been rising rapidly because of the combined effects of rising claim severity and increases in claim frequency, according to an insurance industry report.
A new Insurance Research Council (IRC) study of homeowners insurance claim trends found that from 1997 to 2011, the average claim payment per insured home countrywide rose 173%.
In the study, “Trends in Homeowners Insurance Claims,” the IRC examined separately claim trends for claims that were not related to catastrophic events and those that were related to catastrophic events. Trends in average claim severity (the average claim payment per paid claim) for both groups were similar in some respects.
Trends in homeowners insurance claim frequency (the number of paid claims per 100 insured homes) were very different for the two groups of claims over the 15-year study period. The frequency of claims unrelated to catastrophic events fell substantially from 1997 to 2005 because of a variety of factors. Since 2005, however, noncatastrophe-related claim frequency has increased at an annualized rate of 2.9 percent. Catastrophe-related claim frequency, while much more volatile, remained fairly flat through much of the period.
The study also examined the relative importance of catastrophe-related claims as a factor in overall homeowners insurance claim trends and found that catastrophe-related claims played a significantly greater role in overall claim trends in the second half of the 15-year period. Catastrophe-related claims accounted for 25 percent of overall claim costs countrywide from 1997 to 2003, on average, but 39 percent of overall claim costs from 2004 to 2011.
Source: The Insurance Research Council
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