Increases Expected From Major Homeowner Insurance Companies

According to Robert Hartwig, who serves as the Insurance Information Institute’s president, natural disasters related to weather led to economic losses in excess of $70 billion during 2011. Insured damages totaled close to half of that number. That figure is quite high, considering that insured damages per year for the entire decade of 2001 through 2010 averaged less than $25 billion. When taken together, all of these figures mean that insurance premiums for homeowners insurance policies can be expected to rise in 2012. In some cases, they are likely to rise sharply.

Hartwig’s predictions, announced on National Public Radio earlier this month, are already beginning to come true out in the insurance marketplace. Allstate Corporation recently announced plans to raise the rates that homeowners in Illinois must pay. The increases will represent higher payments by as much as $9 per month, which can add up to almost $110 per year. The increases will apply to both existing customers and to new accounts and are expected to become effective near the end of March. However, the exact amount of increase will depend on a number of factors, one of which will be the longevity of the customer’s account with Allstate.

According to the National Association of Insurance Commissioners, the first ten years of the new millennium saw insurance companies often end each year with underwriting losses on the homeowner policies they had issued during the previous 12 months. While such a business model may seem irrational in the extreme, the facts indicate that insurance companies were using their homeowner policies as a form of loss leader.

Supermarkets and other stores often use a loss leader strategy. This marketing technique involves deliberately selling one product – usually heavily advertised – at a loss in order to get consumers “into the store.” Once inside, they may well buy a variety of high-profit items that more than make up for the loss sustained on the loss leader.

Some insurance companies, therefore, were selling homeowner’s insurance at a net loss because they were able to persuade consumers to also purchase car insurance, which typically represents a higher-profit item for the businesses that sell it. Now, however, companies such as Allstate may be rethinking that strategy. Allstate has indicated an interest via financial filings in raising homeowner rates not only in Illinois but also across the nation. During 2011, Allstate already raised such rates an average of more than 10% in more than three dozen states. A similar increase had been applied to over two dozen states during 2010.

Yet Tom Wilson, who serves as Chief Executive at the company, has claimed that rates are still not high enough, saying “They are not adequate for us and the rest of the industry.” Wilson has stated that future increases will vary according to state.

Allstate customers and others who want to see if there is a lower-cost alternative should shop online and compare insurance rates from several different insurers for homeowner insurance. The best place to do this is at an insurance rate comparison website.