Homeowner insurance claims costs in U.S. rose rapidly in last 15 years: report

Homeowner insurance claims costs in the United States have risen rapidly in the past 15 years, mainly because of increased severity and frequency of the claims, a new report suggests.

Trends in Homeowners Insurance Claims, a study by the Insurance Research Council looked at claim trends both related and unrelated to catastrophic events between 1997 and 2011.

In that timeframe, the average claim payment per insured home increased from $229 to $626, or 173%, IRC said. For the entire period, the annualized rate of increase was 7.4%, the study suggests. In 2011, claim costs per insured home increased 27%.

Claim severity, or the average claim payment per paid claim, increased almost 200% during that 15-year period, for both catastrophe-related and unrelated events, IRC said. The trend for catastrophe-related claim severity, however, had more significant increases and decreases from year-to-year in that period, IRC noted.

The frequency of claims, or the number of paid claims per 100 homes, fell substantially from 1997 to 2005 for non-catastrophe-related claims, IRC said. Since then, though, the frequency has increased annually at a rate of 2.9%, while catastrophe-related claims frequency remained fairly flat.

Catastrophe-related claims, though, played a significant role in overall claim trends in the later half of that period. Those claims accounted for a quarter of overall claims costs between 1997 and 2003, but 39% from 2004 to 2011.

“This report has significant implications for everyone involved with homeowners insurance,” Elizabeth Sprinkel, senior vice president of the IRC noted in a statement. “Insurance companies face significant challenges in responding effectively to rapid growth in claim severity and increases in claim frequency, and in managing the volatility attributable to catastrophe-related claims,” she said,

“In addition, consumers will find it increasingly important to consider steps to control their personal exposure to risk and to mitigate the damages and costs associated with severe weather events.”

IRC used data from the Fast Track Monitoring System, which represents about half of the homeowners insurance market in the U.S., for this study.