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New Study Shows Dramatic Increase in Homeowners Insurance Claims Cost

Posted on Oct 14, 2012

A new study “Trends in Homeowners Insurance Claims” conducted by the Insurance Research Council (IRC) reveals that the cost of homeowners insurance claims has been increasing quickly. The report indicates that this is due to the combination of the rapid rise of claim frequency and the increase in the severity of the claims. 

This study took place over a 15-year period from 1997 to 2011. After reviewing residential insurance claimsfor both catastrophic and noncatastrophic events, the IRC determined that the average claim for catastrophic events was $7,553 and $8,077 for noncatastrophic-related claims. However, the catastrophic claim severity dramatically decreases and increases from year-to-year.

The study revealed that catastrophe-related insurance claims significantly have increased over the second half of the 15-year period, accounting for 39% of the total claim costs from 2004 to 2011 but only 25% of overall claim costs from 1997 to 2003. In 2011 alone, the cost of homeowners insurance claims— which includes homes, townhomes, and condominiums – increased by 27% per insured home. 

Elizabeth Sprinkel, senior vice president of the IRC, said in a statement that, “Insurance companies face significant challenges in responding effectively to rapid growth in claim severity and increases in claim frequency, and in managing the volatility attributed to catastrophe-related claims.” 

Factors that are contributing to the claims costs increasing include:

  • Higher deductibles have decreased low-cost claims
  • Increase in size of new homes, which costs more to repair when a disaster occurs
  • Insurance companies not raising deductibles enough over time
  • Increase in development in areas vulnerable to wildfires and catastrophic weather events

The report was based off of data from the Fast Track Monitoring System, which accounts for half of the nationwide homeowners insurance market.

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