Springfieldians face changes in homeowners insurance

Changing market conditions, declining investment income and record payouts for storm-related damage are reshaping Missouri's homeowners insurance market.

In mid-June, State Farm Insurance stopped writing new homeowners policies in Missouri. According to Jenni Behymer, public affairs specialist for State Farm's operation center in Columbia, the company stopped writing new homeowners policies due to extremely rapid growth.

"Basically, we're not taking on any new business in terms of homeowners policies, but that in no way affects any of our current customers," said Behymer. "It's not going to last forever, and we'll probably reevaluate it at the end of this year and see where our company stands at that point and determine what we need to do then."

Behymer said the decision to stop writing homeowners policies was in response to two years of rapid growth. In 2001, State Farm gained almost 700,000 new homeowners policyholders, and from January through May of this year, the company gained another 225,000.

"We are growing, as a company, at a pace we can't continue right now," Behymer added. "Growth typically brings profit. Too much growth for an insurance company, unlike most businesses, is not necessarily a good thing. Rapid growth in insurance policies produces a lot of significant initial costs but a much smaller amount of initial income."

Establishing a moratorium on new homeowners' policies will allow State Farm to reduce its market share in Missouri. According to the Missouri Department of Insurance in Jefferson City, State Farm Fire and Casualty Co. had a 24.5 percent market share for homeowners' policies in Missouri during 2001.

That market share worked to State Farm's detriment in 2001. MDI data, which is based on company reports and filings, shows that State Farm Fire and Casualty Co. took in more than $169 million in premiums in 2001 but incurred losses on homeowners' policies of more than $325 million.

And State Farm Fire and Casualty Co. wasn't the only insurance company that posted losses on homeowners' policies in 2001. American Family Mutual Insurance Co., Mid Century Insurance Co., Safeco Insurance Co. of America and several others that do business in Missouri also posted substantial homeowners' losses. These losses largely can be attributed to property damage from severe storms that wracked the state April 10, 2001.

"April 10 of 2001 will be remembered as the biggest property and casualty catastrophe loss in Missouri's history," said Calvin Call, executive director of the Missouri Insurance Coalition, which represents 84 insurance companies statewide. "Large hail in the north St. Louis area caused a lot of property damage."

A number of other events also have had an adverse affect on insurance companies in recent months, according Brent Childress, an agent with Shelter Insurance in Springfield and president of the Springfield Association of Insurance and Financial Advisors.

"I don't think we can attribute the changes we're seeing in the insurance industry to any one thing," said Childress. "Yes, weather-related claims have been up in Missouri the past two years, but we're also affected by national events. First there was 9-11, then the wildfires in Colorado and Arizona, which hurt insurance companies that had a high concentration of business in those areas, not to mention the fact that the stock market has been down. Then there's toxic mold, which is expensive to fix. All of these factors are driving rates up in the industry."

According to Randy McConnell, spokesperson for MDI, the top seven insurance carriers in the state have increased rates on homeowners insurance policies by an average of 31 percent over the last 18 months. McConnell said that comparatively, auto insurance rate increases have remained in the single digits.

MDI complaints on homeowners insurance tripled overall in 2001, including a 133 percent increase in complaints from persons whose insurers refused to renew their coverage, McConnell added.

"Current Missouri law doesn't prohibit insurers from increasing your homeowners rates or non-renewing your policy for weather-related claims," said McConnell. "A state regulation prohibits increasing rates on comprehensive auto coverage for these kinds of weather-related claims, but no comparable protection exists for homeowners policies."

In addition to seeing premiums increase and the number of non-renewals rise, an increasing number of insurance companies are tightening up their underwriting. According to Kathryn Lang, immediate past president of the SAIFA and an agent at American Family Insurance in Springfield, many insurance companies are getting more selective about who they insure.

"A lot of companies are starting to tighten up their underwriting," said Lang. "They're looking at customers' credit ratings, their claim histories and other factors. I think if I was a homeowner, I wouldn't file a claim right now."

Lang also recommended homeowners go with a higher deductible. McConnell agrees.

"We're urging homeowners to not file small claims because their rates might increase, or they might risk losing their policy altogether," McConnell said. "Also, if you receive a nonrenewal notice, your company may elect to extend your coverage if you increase your deductible."

Despite these changes, Call believes Missourians are fortunate because many insurance companies do business in the state, and he encourages consumers to shop around for a homeowners policy.

Call said that while some insurance companies are filing for rate increases and tightening their underwriting guidelines, other companies are keeping their rates stable and writing more policies in an attempt to capture more business.

"I think that the public should be aware that they can control a lot of their own price and product and service just by shopping around and making sure that they take adequate safety measures in their own home, keep it in good operable condition and also that they limit any individual claims they might be responsible for," Call added.