Sandy’s Surge Swamps Homeowners Insurance Premiums Nationwide

by 05 Nov 2012

 Superstorm Sandy will be felt by homeowners  thousands of miles from the wind and  surge that devastated this Northeast last week.  Homeowners insurance premiums are rising already even as the last of the storm’s flood waters wash out to sea.

"Rates are increasing rapidly across-the-board, and on a national basis, even in states that were left high and dry by the storm," says Richard "Gordy" Bunch, president and CEO of The Woodlands Financial Group.

"Our headquarters in Texas, with 3,000 affiliates and branches in 38 states, are being forewarned with definitive messages from insurance carriers that they are filing for rate increases," Bunch said. Almost all insurance rates are set by carriers, but they must be approved by licensing commissions in individual states.

Bunch said one of America's largest carriers sent him an e-mail this morning that said that property rates are increasing and new higher rates will go into effect almost immediately.  The email said agencies should document any lower rates they have already quoted.

"The premium on your quote will be higher than your original quote," the insurance carrier is telling agencies. "Customers will have to pay the new higher rate, but your documented original quote could be reviewed later for policyholder credit."

Bunch represents more than 200 carriers and says homeowner insurance premiums have been rising since 2004.  "Sandy is only the latest in a series of devastating and costly hurricanes that have hit the United States and keep changing our models," he said, noting that each hurricane contributes, by its unique impact, to new catastrophe modeling and increased homeowner premiums.

"'Andrew' brought new construction guidelines in 1993 since that storm uncovered lax building codes. In 2005, 'Katrina' increased PML (Probable Maximum Loss) projections for almost every coastal-exposed home. Since many insurance companies had not bought 'reinsurance' coverage prior to Katrina, post-Katrina created a surge in demand for catastrophe reinsurance which increased reinsurance expenses for the carriers and, ultimately, homeowner's premiums along the Gulf Coast. 'Rita' made landfall just 30 days after Katrina. Then, three years later; 'Ike' created another new model by adding near-term frequency updates to the catastrophe expectations. This increased premiums because the expectations of catastrophes had increased," he said.

Bunch said the insurance industry has not had its geographic focus on the mid-Atlantic and New England regions.  "The fact that in 2011 'Irene' became more of an inland flooding storm, may have provided a false sense of security and avoided new modeling for that area. But, now that 'Sandy' in 2012 has made a significant impact, just one year after Irene, there will be new modeling and near-term frequency factors applied to the mid-Atlantic and New England exposures. Higher premiums for homeowners are again inevitable.”

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