"California
insurers paid nearly $2 billion for household water damage
claims between 1997 and 2001"
Top
5 Reasons Homeowners Insurance Rates are
Rising
Representatives from
the Personal Insurance Federation of
California (PIFC), the Association of
California Insurance Companies (ACIC) and the
American Insurance Association (AIA) recently
announced the top five reasons California's
homeowners insurance rates are rising.
The first to fall on the list is skyrocketing
water damage claims, followed by increasing
mold claims and litigation costs. Escalating
home repair costs coupled with increased home
values are boosting premiums, and the final
culprit is fraud.
"California insurers paid nearly $2
billion for household water damage claims
between 1997 and 2001, Diane Colborn, vice
president of the PIFC, said.
"The increase in water claims can be
attributed to many things, including the fact
that the average home in California once had
only one bathroom, but today homes average
two, three or more," Colborn continued.
"Other factors may include additional
changes in building designs, building codes
and building materials.
Colborn explained that, according to the
Insurance Information Institute, insurers are
paying out $1.18 in homeowners claims for
every dollar collected in premiums.
Mold litigation costs are also a huge factor.
Sam Sorich, president of the ACIC, said that
insurers base rates on previous loss data,
however, the recent explosion of costs to
mitigate and litigate mold claims was not
predicted, and therefore, never factored into
rates. "This is why insurers have
requested rate increases from the California
Department of Insurance after providing water
damage claims loss data," Sorich said.
Home values have also escalated over the past
five years, with the average home price in
California now at $273,000, according to the
California Realtors Association.
"Insurance rates are impacted by the
rapid rate of refinancing, higher building
material costs and equity loans which have
spurred higher demand and higher prices for
qualified construction contractors,"
Sorich said.
"For nearly a decade, insurance premiums
remained relatively flat while all costs
associated with repairing homes increased
significantly, " Sorich continued.
"If you look at average homeowners
insurance premium paid in California from 1996
to 1999 (the latest data available), you will
find that premiums have gone up $77 over three
years, or approximately $25 per year."
Bill Gausewitz, assistant vice president of
state affairs for AIA, noted the alarming rise
in fraud investigations in California. He said
that whenever there is a down economy, there
is always a rise in fraudulent insurance
claims. "California insurers spend
millions each year aggressively investigating
suspected fraudulent claims," Gausewitz
said.
"According to the Consumer Federation of
America, fraud is a $100 billion a year
business and insurance fraud comprises nearly
half of fraud losses annually," he said.
California households spend an extra $200 a
year in premiums to pay for fraud.
"There is no quick fix for the current
homeowners insurance market in California.
Insurers have a duty to pay claims and must
maintain a balanced book of business to remain
solvent," Gausewitz added.
"We look forward to working with the
legislature to come up with solid solutions
that will keep the homeowners insurance market
open, not paralyze the industry's ability to
do business in the state."
