Homeowners’ Claim Costs Fueled by Rise in Severity, Frequency

The cost of homeowners insurance claims has been rising rapidly because of the combined effects of rising claim severity and increases in claim frequency, an Insurance Research Council (IRC) study of homeowners insurance claim trends found.

From 1997 to 2011, the average claim payment per insured home (houses, apartments and condos) countrywide rose 173 percent, from $229 to $626. In 2011, homeowners insurance claim costs per insured home increased 27 percent. Over the entire study period, the annualized rate of increase was 7.4 percent.

In the study, “Trends in Homeowners Insurance Claims,” the IRC examined trends for claims that were not related to catastrophic events and those that were related to catastrophic events.

Trends in average claim severity (the average claim payment per paid claim) for both groups were similar in some respects. For both groups, countrywide claim severity increased almost 200 percent and ended the 15-year period in 2011 with similar values — $8,077 for non-cat-related claims and $7,553 for cat-related claims. Significantly, however, the trend in catastrophe-related claim severity was much more volatile from year-to-year, with dramatic increases and decreases during the study period.

Trends in homeowners insurance claim frequency (the number of paid claims per 100 insured homes) were very different for the two groups of claims in the 15-year study period.

Claims frequency unrelated to cat events fell substantially from 1997 to 2005 for a variety of factors. Since 2005, however, non-cat-related claim frequency has increased at an annualized rate of 2.9 percent. Cat-related claim frequency, while much more volatile, remained fairly flat through much of the period.