Cost of Homeowners Insurance Claims Rising Fast

The Insurance Research Council (IRC) in its recent study, “Trends in Homeowners Insurance Claims” presented that homeowners insurance claims cost has been rising rapidly.

The IRC study attributed the claim cost rise to the increase on the number of claims and its severity.

From 1997 to 2011, the average claims payment per insured home across the United States had increased from $229 to $626, a 173 percent hike. Last year, the claims costs per insured home have rose to 27 percent.

In doing the study, the IRC went through the process of examining homeowner insurance claims that were and were not related to catastrophic events. However, the study was able to pinpoint that the trend in the average claim severity both for claims from catastrophe-related events and non-catastrophic events were almost similar with claim severity increasing to almost 200 percent. The claim severity refers to the average claim payment per paid claim. The average claim payment per paid claim in the 15-year period covered by the study had reached to $7,553 for catastrophe related claims and $8,077 for non-catastrophe related claims.

On the other hand, the homeowners insurance claim frequency between catastrophe related claims and non-catastrophe related claims are quite different. The claim frequency refers to the number of paid claims per 100 insured homes. Frequency of claims unrelated to catastrophe had substantially reduced in the 15-year period but the frequency of claims related to catastrophic events had significantly increased at the rate of 2.9 percent since 2005.

IRC Senior Vice President Elizabeth Sprinkel pointed out that the study showed “significant implications for everyone involved” in the homeowners insurance. Insurers through the study can see the challenges they encounter in responding to the rapid growth of claims while consumers can see the need to take necessary steps to control the risk of having homeowners insurance claims.

The IRC in the said study used data from the Fast Monitoring System, and have represented almost 50 percent of the homeowners insurance market in the U.S. The said institution is being supported by different property and casualty insurance companies.