Oklahoma Orders Change in Earthquake Insurance Rating

Oklahoma’s top insurance regulator has determined that there’s a definite lack of competition in the earthquake insurance market in Oklahoma and ordered insurers to change the way they file rates for the coverage in the state.

Commissioner John D. Doak’s order comes on the heels of a public hearing held in late May to examine the availability and affordability of earthquake coverage in the state. The hearing was called after consumers complained of rising rates and a report by Reuters showed that some insurers had increased rates and/or deductibles and that some were leaving the market altogether.

In the order, Doak said the insurance department had received many inquiries and “statements of concern” from the public about the cost versus benefit of purchasing earthquake coverage. The order also states that several insurers have filed to “increase the cost and decrease the availability of earthquake coverage.” In the commissioner’s view, insurers “have not substantiated their need for increased rates based on objective criteria.”

Most earthquake coverage in Oklahoma is written as an endorsement on the homeowners’ policy.

As of Dec. 31, 2015, in the six preceding years, the market share of the four largest providers of earthquake coverage in the state has consistently topped 50 percent. Doak said evidence of insurers’ cost to revenue during those six years “demonstrates that current rates appear to be excessive.”

As a result, Doak’s order requires property/casualty insurers to file their earthquake insurance rates before using them.

Under normal circumstances, insurers in Oklahoma may implement rate changes under a “use and file” system; they can make rate changes and then file those modifications with the insurance department. Under the “use and file” system, an insurer can use any rate so long as it filed the rate with the department within 30 days after implementation.

The commissioner’s order requires insurers offering earthquake policies to “file and use” rate changes, meaning the rates are subject to a challenge by the commissioner if they are found to be inappropriate.

“There needs to be a valid basis for any rate increase,” Oklahoma Insurance Commissioner John D. Doak said in a statement released by the insurance department. “My job is to protect Oklahomans, and this change will ensure earthquake coverage remains available and affordable.”

During the May hearing, data was released on the competitiveness of the earthquake insurance market. The commissioner found that a reasonable degree of competition does not exist in the market and that consumers have a limited ability to shop for a competitive price.

In advance of the hearing, insurance trade groups, such as the Property Casualty Insurers Association of America and the American Insurance Association, expressed opposition to increased regulation, saying that with 119 carriers offering earthquake coverage in the state the market it competitive.

The AIA recognized that earthquakes had increased in the state over the in the last several years and urged mitigation — such as adopting and enforcing stronger building codes — rather than increased regulation.

PCI’s Joe Woods, in a statement released by the organization, noted the number of carriers offering coverage and said, “consumers have choices if they are willing to shop the market.”