Insurance trends in home and business: it's harder to get insurance and costs are rising.

• Author: Saunders, Stacey
• Position: Analysis of insurance industry's finances

The sky is falling--who's going to pay for the mess? Most homeowners and business owners assume their insurance policies will cover damage to property or defend them against lawsuits by visitors hit on the head by that pesky acorn. In today's insurance market, they may be wrong. Insurance companies are losing money-and handing the risk back to consumers.

An article in National Underwriter, Property & Casualty Risk Management Edition (Dec. 17,2001), lists several contributing factors: 10 years of unprofitable underwriting, declining capacity in some insurance lines, and poor returns on investments. Add to these factors losses from 1992's Hurricane Andrew, the 1994 California earthquake and a final straw, the 2001 terrorist attacks on Sept. 11 which generated between $35 billion and $50 billion in losses industry-wide. The Insurance Journal (July 1, 2002) reports that over the past decade insurers paid $1.18 in losses for every $1 they earned in premiums. The insurance industry is in what is known as a "hard market," characterized by higher premiums, more restrictive coverages, and in some cases, withdrawal from certain markets.

COMPANIES DROP HOME INSURANCE COVERAGE

The State of Alaska Division of Insurance regulates insurance companies, producers, brokers and other insurance licensees doing business in Alaska. On Jan. 18,2002, Division Director Bob Lohr informed the House Labor and Commerce Committee, "For a number of years (the consumer has) been blessed with a soft market, with fairly low and fairly stable insurance rates in the property/casualty area" Robert Hagen, president and founder of Hagen Insurance Inc., an independent broker, has been in the industry 30 years. Hagen says, "the insurance market is cyclical. For the last 18 months, property and casualty has been hardening." Property and Casualty. com, an online newsletter for Loss Control Professionals, reports, "Insurers have been confronted since the late 1990s with an uncommon spate of severe weather losses, home repair costs rising 7 percent annually, dwindling investment income and, since the Sept. 11 terrorist attacks on America, soaring reinsurance costs ...." Lohr told the Legislature that while "Alaska insurance companies were not directly impacted ...(they) are being dramatically affected by the secondary impacts of those events, increased costs and availability of reinsurance. The smaller the insurance market the more serious those impacts might be." Impact ranges from significantly higher insurance premiums to canceled policies to companies ceasing to operate in Alaska.

HOMEOWNER'S INSURANCE

The Division of Insurance states the largest single investment most people make is their home and most homeowners purchase insurance to protect their residence and personal property. The Insurance Information Institute predicts home insurance premiums rose 8 percent in 2002 and will increase an additional 9 percent in 2003. State Farm Insurance Co., the nation's largest home and auto insurer, is also the number one homeowner's insurance provider in Alaska. However, in June 2002, State Farm stopped writing new homeowner's policies...