There are plenty of places to put the blame — declines in the stock market, the impact from Sept. 11, litigation concerns and Mississippi being more disaster prone than a lot of other states. But the bottom line is homeowners’ insurance availability in Mississippi has become increasingly difficult to get this year with some major carriers no longer writing new homeowners’ policies in the state.
State Farm, the state’s largest carrier of home insurance with about 30% of the market, has stopped writing new homeowners’ policies in the state but continues to write homeowners’ policies for existing customers.
“This form of managed growth allows current State Farm customers who move to Mississippi to continue their coverage, and allows customers residing in Mississippi to remain with State Farm should they move or acquire another property,” said State Farm spokesperson Tyrus Sturgis.
“Our focus remains on providing the best customer service for policyholders should the unexpected occur. Our leadership continuously monitors claims data and trends to ensure State Farm is prepared to keep our promise of protection to our customers. Being prepared includes having claim representatives readily available in the event of a loss, providing prompt, courteous service and maintaining the company’s financial strength.”
Another large carrier in the state, Allstate, is not writing any new fire policies or comprehensive personal liability policies.
“As you know, the availability of homeowners’ insurance in Mississippi and throughout the country continues to be a challenge — not just for Allstate, but for the entire insurance industry,” said April Eaton Robinson, communications manager for Allstate corporate relations in the Southeast. “As a company, we understand why some companies are no longer accepting new homeowners’ policies, but Allstate is trying to avoid some of those actions. In Mississippi, we’re dealing with issues involving tort reform, the general business environment and weather concerns. However, Allstate wants to remain viable and continue providing insurance to Mississippi consumers. So, we have to take some tough steps in order to do that.”
Those steps include raising rates. Robinson said the company has done this reluctantly and had to do so to make sure they are charging the right price for that risk.
The Mississippi Department of Insurance approved an overall homeowners’ rate increase of 16.8% in March for Allstate after the company received a 9.9% increase in March 2002. An increase of 3% was approved in 2000 after no rate increases in 1998 and 1999.
Robinson said between 1998 and 2001, Allstate lost $19.8 million on Mississippi homeowners’ policies.
“Allstate has had to make some difficult decisions, but we believe it’s the best way to ensure our continued ability to provide coverage for Mississippi customers,” Robinson said. “When the choice is no insurance versus taking the steps Allstate is taking to remain viable, we feel it’s best to charge the adequate rates and set the guidelines in order to continue providing insurance in Mississippi.”
Insurance companies are in a hard market cycle, which in layman’s terms means their profitability is not what it used to be or is nonexistent, says Scott Naugle, executive vice president, Stewart Sneed Hewes/BancorpSouth, Gulfport.
Naugle said the availability of homeowner’s insurance is tied to the fact that it is a loss leader with insurance companies. Most companies have been losing money on their homeowners’ policies, while finding that automobile insurance and other types of insurance are more profitable.
“Insurance companies are finding auto coverage is reasonably profitable, and it subsidizes the losses people are having in the home insurance market,” Naugle said. “Because profitability is elusive, insurance companies are being forced to select ‘the cream of the crop’ in order to be profitable.
“Rural homes that do not enjoy close or quick fire department response or may not have adequate water to put out a fire are viewed as a higher risk,” Naugle said. “In this market insurance companies either avoid rural homes completely or are extremely selective. The same situation exists in the three coastal counties except the issue is wind versus fire.
“I would say this is not just a Coast issue or Mississippi issue, and it is not specific to this time,” Naugle said. “The same issue exists in California with the earthquakes, in the Northeast with heavy snowfall and blizzards, and in the Carolinas with a wind and coastal water problem. Catastrophic issues exist around the country. We’re not alone and the problem is not going to go away.”
Naugle, whose company operates in several states, said Mississippi generally is viewed as a disaster-prone state.
“As a Mississippian, I’m sad to say that,” he said. “We have ice storms in the northeast corner of the state, hailstorms in middle part of the state, tornadoes in the middle and northern parts of the state, and the southern part of the state has the hurricane problem. It is difficult for an insurance company to make a reasonable profit in Mississippi year after year.”
He recommends that homeowners help the situation by keeping their homes maintained, and providing as many protections like storm shutters as possible. He also thinks it is important for the Legislature to address the tort reform.
“In addition to the property coverage, homeowners’ policies provide personal liability coverage,” Naugle said. “With more frequent and more severe personal lawsuits being filed and litigated, it is causing homeowners’ insurance companies to pay and offer more settlements, and to pay for the defense of their homeowner clients. The Legislature and governor absolutely have to address the runaway litigation problem in this state.”
Some states don’t have a major problem with litigation, he said, because they have addressed it. But others like Texas have seen large lawsuit verdicts that have caused many companies to stop writing policies in the state.
“All these issues mix together to cause a problem: the weather, catastrophic potential, litigation potential and rural homes with a problem with fire protection,” Naugle said. “Each one of these is just another piece of the problem that when added together make it a major problem.”
One option currently being used by one insurance company that may become more common is an endorsement to homeowner’s policies requiring the insured to sign an agreement for binding arbitration should there be a dispute or problem with insurance.
“This carrier was saying they did not trust the Mississippi legal system, and wanted no part of it,” Naugle said. “And if the insured homeowner is not willing to agree to arbitration, then they aren’t going to write the policy.”
Jim Jenkins, executive vice president of the Mississippi Farm Bureau Mutual Insurance Co., said underpricing of homeowner’s insurance products is also a problem.
During the stock boom of the 1990s, many insurance companies made more money on their stock investments than on their insurance products. As a result, some insurance products were underpriced. Now that gains from stock market are hard to come by, companies are raising insurance rates to compensate.
“Right now we are in a hard market,” Jenkins said. “We will, in time, go to the soft market and then people will be worried more about selling than getting the price right. People don’t realize it, but in the past 20 years they have been getting a real bargain in terms of home insurance. Because of the economy and other impacts, the price of ho
nsurance has got to go up. Just like I don’t think zero financing on autos will last forever, eventually the market will change. In a couple of years the price will get right and we will go back to a soft market.”
Jenkins said the state’s tight mark