What's behind rising homeowners insurance premiums?
The recent wave of homeowners insurance premium increases is considered unprecedented. Ohio historically has experienced a stable homeowners insurance environment with premiums well below the U.S. average. Even with the recent rise in premiums, Ohioans pay $150 less than the U.S. average for homeowners insurance, and the average homeowners insurance premium ranks 49th lowest in the country.

What's causing the increases?
Homeowners insurance has been under-priced for years, with a combined ratio of over 100 for a number of years. (The combined ratio is the percentage of each premium dollar a property/casualty insurer spends on claims and expenses such as business overhead. A combined ratio above 100% means the insurer is losing money on that line of business. A combined ratio of 105%, for example, means that $1.05 was paid in claims and expenses for every dollar of premium earned.) Figures compiled by ratings agency A.M. Best show that the insurance industry had a combined ratio of under 100 on underwriting homes just once in the past two decades. That was in 1987, when claims and related business expenses cost insurers 97 cents of every dollar in premiums. In the last decade, insurers paid on average $1.18 for every homeowners insurance premium dollar collected.

Losses in the homeowners insurance line over the past three years (2000-2002) are estimated at $19 billion. In 2001, U.S. homeowners paid out $8.9 billion more than they collected in premiums. According to the Ohio Department of Insurance, for every dollar collected in homeowners insurance premiums in 2001, Ohio insurers paid out $1.21. This is above the U.S. average of $1.08 paid out for every $1.00 in premiums. Insurers, especially in states like Ohio, have artificially held down homeowners insurance premiums for years to build market share. However, catastrophes and related business expenses kept the homeowners line from actually becoming a profit generator.

Also contributing to the rise in premiums:
• Higher than normal catastrophe frequency and severity during the 1990s. Over the past 12 years, insurers paid out more than $100 billion in catastrophe-related losses about $700 million per month-many times more than in previous decades.

• Slower than average increase in property/casualty insurance stock prices

• Cost of construction
On average, home construction costs in Ohio rose 10.8% between 1996-2001. A residential home built in Ohio in 1996 for $100,000 cost $110,800 to build in 2001.

• Cost of home repair
According to the U.S. Department of Labor, Bureau of Labor Statistics, the cost of household-item repair rose 17.3% between 1998-2000.

• Home values are on the rise, which equates to higher levels of homeowners insurance required to protect them.

• The emergence of mold claims, which were virtually unheard of just a few years ago, cost homeowners insurers more than $1 billion in 2001, five times the cost in 2000.

• Indirectly related to mold claims is the increase in wind and water-related losses.

What kind of increases can consumers expect?
According to the Insurance Information Institute, the average cost of insuring a home is expected to rise about 9-10% nationally this year. Ohio's premium increase averaged 6.3% in 2001, based on Ohio Department of Insurance data for the top 10 homeowners insurance writers. This translates to about a $20 increase for HO-3 homeowners insurance policyholders in Ohio between 2000-2001. The 2002 increase translates to about $56.

How to save on homeowners insurance:
Knowing how to save money can go a long way toward offsetting higher premiums.
• Raise your deductible. Covering smaller losses could mean a substantial savings on your homeowners insurance premium. Increasing your deductible from the standard $250 to $500 can save you 12%, according to Insure.com, a consumer insurance Web site. If you raise your deductible, the savings in premium could be used to pay for minor home repairs.

• Buy all insurance policies from the same company in order to receive a multiple policy discount.

• Avoid filing frivolous claims. Submitting a legitimate claim after years of paying premiums is justifiable, but frequent claims may mark you as a high risk. Consider personally paying for smaller losses to avoid related premium surcharges or even the chance of nonrenewal.

• Review your policy annually. Correct and/or update the information. Double-check the information regarding how far your home is from a water source such as a fire hydrant, as well as the location of the nearest fire station. If you carry an insurance endorsement on an item that has depreciated, reduce or eliminate the endorsement that covers it.

• Although there are more cases of under-insuring rather than over-insuring, make sure your land is not included in the amount of insurance coverage you buy. Land is part of your home's market value but does not need to be insured.

• Stay with your insurer Some insurers reduce premiums by 5% after three to five years, and up to 10% if you remain a policyholder longer.

• Keep tabs on your credit. An Insurance Bureau Score (IBS) is a snapshot of your insurance risk picture based on information in your credit report. Some companies take insurance scores into account when assessing a potential homeowners insurance risk. IBS reflects your credit payment patterns over time, with more emphasis on recent information.

*This information was provided by The Ohio Insurance Institute.