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Trends in Homeowners Insurance Claims. Center for Insurance Policy & Research October 7, Trends in Homeowners Insurance Claims

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Trends in Homeowners Insurance Claims

Center for Insurance Policy & Research

October 7, 2014

Trends in Homeowners Insurance Claims

Homeowners claim trends countrywide

• Average claim payment per insured home • Frequency

• Severity

The role of catastrophesVolatility

Individual state trends and differences

(2)

$229

$625

$442

1997 1999 2001 2003 2005 2007 2009 2011 2013

Average HO Claim Payment per Insured Home All Claims, All Policy Forms Combined, Countrywide

Annualized Growth Rate = 5.0% Volatility Index=21%

$0 $2,000 $4,000 $6,000 $8,000 $10,000 0.0 2.0 4.0 6.0 8.0 10.0 12.0 1997 1999 2001 2003 2005 2007 2009 2011 2013 claim severity claim frequency

HO Claim Frequency & Severity

All Claims, All Policy Forms Combined, Countrywide

average payment per paid claim number of claims paid per 100 insured homes

Trends in Homeowners Insurance Claims

8.6

$2,676

$8,787

(3)

-2.6% 7.8% Frequency Severity Annualized Change 1997-2013 45% 5% Frequency Severity Volatility Index 1997-2013 Homeowners Claims

All Claims, All Policy Forms Combined, Countrywide

Trends in Homeowners Insurance Claims

2.4% 5.0% 7.8% 7.1% CPI HO claim payment per insured home HO claim

severity asphalt and tarPrepared roofing and

siding Annualized Change

(4)

…the prices for all asphalt products have risen significantly. The cokers installed by many refiners allow them to refine oil in ways that have changed the oil/asphalt dynamic forever… the use of cokers means there’s less flux left at the end of the oil refining process, resulting in higher costs to the shingle manufacturer.

…storm-related reroofing now represents a greater percentage of the roofing market. The unpredictable nature of extreme weather events makes it much harder for manufacturers to anticipate demand, often resulting in severe regional shortages of asphalt shingles.

Midwest Roofing Contractors Association

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1997 1999 2001 2003 2005 2007 2009 2011 2013

HO Claim Payments by Catastrophe Component All Policy Forms Combined, Countrywide

claims excluding catastrophes

catastrophe-related claims

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$0 $2,000 $4,000 $6,000 $8,000 $10,000 0 2 4 6 8 10 12 1997 1999 2001 2003 2005 2007 2009 2011 2013

claim severity claim frequency

number of claims paid per 100 insured homes average payment per paid claim

Claim Frequency & Severity, Excluding Catastrophes

All Policy Forms Combined, Countrywide

7.0 $2,709 $8,772 3.5 $2,529 $8,823 1.6 $0 $2,000 $4,000 $6,000 $8,000 $10,000 0 2 4 6 8 10 12 1997 1999 2001 2003 2005 2007 2009 2011 2013 claim severity claim frequency

number of paid claims per 100 insured homes average payment per paid claim

Claim Frequency & Severity, Catastrophe Claims All Policy Forms Combined, Countrywide

Trends in Homeowners Insurance Claims

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1.3%

-4.6%

Cat Non Cat Claim Frequency

7% 8%

Cat Non Cat Claim Severity

Annualized Change (1997-2013)

Volatility Index (1997-2013)

95%

25%

Cat Non Cat Claim Frequency

20%

2%

Cat Non Cat Claim Severity

State Trends

• Absolute costs • Cost growth • Role of catastrophes • Volatility

(7)

$1,743 $218 $0 $500 $1,000 $1,500 $2,000 Oklahoma Mississippi Nebraska Colorado Louisiana Texas Illinois Florida Pennsylvania Virginia Maine Delaware Hawaii Utah Oregon

HO Claim Payment per Insured Home in 2013

All Claims, All Policy Forms Combined

Trends in Homeowners Insurance Claims

Average Claim Payment per Insured Home, 2009-2013

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0.5% 1.8% 2.3% 2.7%

5.0%

8.5% 9.7%

12.6% 12.7%

HO Claim Payment per Insured Home Annualized Growth Rates, 1997-2013

Trends in Homeowners Insurance Claims

Annualized Growth in Average Payment per Insured Home

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$0 $200 $400 $600 $800 $1,000 $1,200 1997 1999 2001 2003 2005 2007 2009 2011 2013 Minnesota Oregon

Average Claim Payment per Insured Home

Volatility Index=94%

Volatility Index=50%

Trends in Homeowners Insurance Claims

Volatility of Average Claim Payment per Insured Home

(10)

$291 $204$273$205$261 $284 $269 $417 $250 $247 $361$399 $919 $827 $638 $936 $698 1997 1999 2001 2003 2005 2007 2009 2011 2013 Noncatastrophe claims Catastrophe claims

Average Claim Payments per Insured Home All Policy Forms Combined

Colorado Fourmile Canyon wildfire and 2 other events 4 PCS-designated

catastrophe events

Average Claim Payments per Insured Home All Policy Forms Combined

Oklahoma $262$349 $893 $466 $511 $407 $484$541$370 $363$506 $1,319$1,279 $1,673 $977$1,119 $1,743 1997 1999 2001 2003 2005 2007 2009 2011 Noncatastrophe-related Catastrophe-related 3 PCS-designated catastrophe events 10 PCS-designated catastrophe events

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$255 $703 $372 $304 $536 $390 $474 $344 $4,427 $1,762 $1,456 $903 $654 $721 $774 $555 $1,081 1997 1999 2001 2003 2005 2007 2009 2011 2013 Noncatastrophe-related Catastrophe-related

Average Claim Payments per Insured Home All Policy Forms Combined

Mississippi Hurricanes Cindy, Katrina, Rita,

and 5 other PCS-designated catastrophe events

Trends in Homeowners Insurance Claims

$170 $189 $185 $184 $235 $244 $258 $1,946 $1,349 $777 $425 $494 $497 $507$555 $538 $462 1997 1999 2001 2003 2005 2007 2009 2011 2013 Noncatastrophe-related Catastrophe-related

Average Claim Payment per Insured Home All Policy Forms Combined

Florida Hurricanes Charley, Frances,

Jeanne and Ivan

Hurricanes Dennis, Katrina, Rita, Wilma and 1 other PCS-designated catastrophe event

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$340 $344 $365 $591 $745 $914 $606 $275 $374$332 $337 $1,026 $870 $555 $794 $634 $551 1997 1999 2001 2003 2005 2007 2009 2011 Noncatastrophe-related Catastrophe-related

Average Claim Payment per Insured Home All Policy Forms Combined

Texas 7 PCS-designated

catastrophe events

Hurricanes Dolly, Ike and 9 other PCS-designated catastrophe events

Bastrop wildfire

Trends in Homeowners Insurance Claims

$266 $280 $267 $266 $325 $349 $395 $343 $286 $262 $455 $440 $312$363 $348 $352 $355 1997 1999 2001 2003 2005 2007 2009 2011 2013 Noncatastrophe-related Catastrophe-related

Average Claim Payment per Insured Home All Policy Forms Combined

California 3 PCS-designated catastrophe events

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Percentage of Total Claim Payments Attributed to Catastrophes 2009-2013

Overall countrywide trends

• Loss costs trending up 5% annually

• Decreasing, but volatile, claim frequency overall • Rapid increase in claim severity

Volatility is primarily a function of the frequency of catastrophe-related claims

Substantial differences across states

• In a given year, loss costs can vary by a factor of 8 • Modeled growth rates vary even more

• Volatility due primarily, but not entirely, to catastrophe claims

Limitations of linear trend

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Trends in Homeowners Insurance Claims

Center for Insurance Policy & Research

October 7, 2014

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