Homeowners insurance premiums are starting to rise after tornadoes, hail, winds and lightning slammed U.S. insurance companies' balance sheets throughout 2011.
Storms along the East Coast, tornadoes in the Southeast and in Joplin, Mo., and earthquakes in Japan and New Zealand wreaked havoc on insurance company finances, especially firms that might have too many policyholders in certain geographic areas, says Bob Skow, CEO of the Independent Insurance Agents of Iowa.
The numbers aren't in yet, since renewals don't all happen at one time, but Robert Hartwig, president of the Insurance Information Institute, says customers are starting to feel the cost of years of heavy losses, particularly in the Southeast and Midwest.
"We've had record losses for four straight years," he said. "My sense is that premiums will probably rise 4% to 5%."
In 2008, the average annual cost of homeowners insurance was $791, according to the Insurance Information Institute. Average premiums rose slightly to $799 in 2009 and $807 in 2010. Hartwig predicts that 2011's average premium will be about $840.
Insurers are charging more to cover higher loss projections and the rising cost of reinsurance — insurance on their insurance.
"Everybody got clobbered," Skow says.
Insured losses in the U.S. in the first half of 2011 were $17.8 billion, more than the $13.6 billion insurers paid in all of 2010, according to Munich Re, a giant European reinsurance company.
A few companies took enough losses they either had to scale back their exposure or became insolvent. Alfa Insurance, the second-largest home insurer in Alabama, announced in June that it would send non-renewal notices to 73,000 homeowners in the following 16 months. The late April outbreak of 300 tornadoes across the South — especially in Alabama — was the costliest storm in Alfa's history, the company reported
Three small insurance companies in Joplin became insolvent because of the May tornado that destroyed much of that town. The Missouri Farm Bureau is taking over policies for the companies, which had to pay out $48 million and didn't have adequate reinsurance to cover their losses, according to the Missouri Insurance Department.