U.S. homeowners rates should rise 2.8% in 2004

Bucking the trend of recent years, U.S. homeowners’ insurance rates are expected to rise by just 2.8% in 2004, according to the Insurance Information Institute (III).
This represents the smallest increase in five years, the III notes, with 2003 seeing a 7.4% hike in rates. In fact, this year average rates should be US$608, up from US$591 last year. This is based on data from the U.S. Bureau of Labor’s consumer price index.
“Small decreases in the frequency and cost of claims have helped improve insurer financial performance, resulting in a significant moderation in the cost of homeowners insurance in 2004,” says Robert Hartwig, chief economist for the III. “With the cost of owning a home in America skyrocketing sale prices, local property and school taxes, energy costs and, now, interests rates on the rise, the moderation in home insurance costs couldn’t come at a better time for homeowners.”
The recent jump in homeowners’ insurance rates came as a result of several factors high numbers of new home owners; mold litigation; catastrophe losses.
In 2003, homeowners insurers paid out $1.03 in claims on every premium dollar collected, coming on top of underwriting losses in the homeowners’ line of US$13.5 billion between 2000 and 2002. Natural disasters exacted a heavy toll last year, resulting in US$13 billion in claims.
This said, many homeowners remain underinsured. Almost two-thirds of Americans are underinsured by an average 27%. Insurers are looking at ways to better calculate home values, but also urge consumers to look at “inflation-guard” endorsements which take into account annual growth in building and reconstruction costs.