The average cost of homeowners insurance premiums in Ohio increased 40 percent between 2003 and 2010, and that upward trend is expected to continue due to a recent string of damaging weather events, industry experts said.
The premium increases came during a decade in which Ohio ranked ninth nationally in disaster damage claims, with $5.2 billion from 2002-11, according to the insurance risk research company Verisk Analytics. Increased storms helped push the average Ohio premium from $476 in 2003 to $666 in 2010.
Despite the increase, Ohio premiums remained relatively low, ranking sixth lowest nationally in 2009, the most recent year with complete data.
"Based on what has occurred, what they do is look to make predictions on what will happen down the road," said Mitch Wilson, a spokesman for the Ohio Insurance Institute. "They make projections for the filings of rates."
The significant weather events continued recently with two days of wind storms that caused hundreds of thousands of area residents to lose power. Beginning with wind storms produced by remnants of Hurricane Ike in 2008, which caused $1.255 billion in insured losses, nine major wind and hailstorm events through last July were the causes of nearly $2 billion in damage, according to information from the Ohio Insurance Institute.
Wilson said Ohio's storm damage from 2007-11 was double that of the previous five-year period.
Insurance companies, which collected $2.16 billion in Ohio home and renters insurance premiums in 2010, must have rate increases approved by the Ohio Department of Insurance, and industry officials said companies cannot raise rates to cover past losses. However, the companies can claim an increase in bad weather signals that they have more risk in the future. That has caused premiums to increase steadily.
"I think anyone who has lived in Ohio in the past few years has recognized a major number of natural disasters, and they've generated significant insurance claims," said Michael Barry, a spokesman for the Insurance Information Institute. "Insurers are looking to price the policy to reflect the risks."
Increasing rates
Until 2008, the costliest weather event in Ohio occurred in 1974, when the Xenia tornado caused about $1 billion in claims, adjusted for inflation. Destructive weather has since increased, which has led insurance companies to price policies reflecting their belief of increased risk.
From 2003 to 2010, the average premium in Ohio dropped only once, from $531 in 2005 to $530 in 2006. Industry officials said several factors influence rates, although the biggest of them is the threat of severe weather. Companies also will consider the costs of construction and materials as well as home values in determining premiums.
"We need to keep in mind insurance companies can't say, 'I want to increase our rates to recoup past losses,' because if they do that the Department of Insurance will shoot it down," Wilson said. "They can try to predict based on future or potential risk. They look down the road, look at potential models, based on what has happened over the past few years."
While companies try to calculate total damage of the recent wind storms that downed trees and damaged homes, companies said, those tumultuous weather days will not directly affect rates by themselves.
"Individual events have no bearing on rate changes," Angie Rinock, a spokesperson for State Farm Insurance, wrote in an email. "We take a long-term view and no one incident is the sole determining factor in setting rates."
Ohio low nationally
In 2009, Ohio claimed the nation's sixth lowest average premium, at $613. By comparison, the nation's highest average premium, in Texas ($1,511), was almost 2.5 times the Ohio average, while the average premium price nationally increased 36.3 percent from 2003 to 2010, to $911.
Industry observers said the relatively low rates — despite Ohio's high standing on damage lists — comes because of competition in the state and regulatory efforts by the Ohio Department of Insurance.
"If the rate gets so high, the policyholder can say, 'Enough, I want to go elsewhere,' " said Barry of the Insurance Information Institute. "The competitive marketplace keeps home insurers from big increases in their rates."
Still, observers said, the companies are setting rates by guessing at future events, although they use past events to determine trends. However, determining trends takes more than several years of evidence, said WHIO-TV meteorologist Rich Wirdzek.
"There is no way to determine, based on a couple years' worth of storms, where we're headed or what the trend is," he said.
But the companies said they use information available to them, which lately has caused them to increase rates. Although some might think those rates are rising too quickly, officials said the companies' priority is making sure they can pay claims.
"I suppose most (people) think, 'My rates are high already,' but it just comes down to simply if you or I were running a business, you have to cover expenses," said Gary Waldron, insurance program manager for the Professional Insurance Agents Association of Ohio.
"Part of what you do is take in premiums and pay out claims, but you also pay overhead, salaries, utility bills, all other overhead expenses, and it's what is required to be able to continue providing service."
Contact this reporter at (937) 225-7389 or Kyle.Nagel@coxinc.com.
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