July 26, 2004

Catastrophic weather cited for rising insurance costs

By The Associated Press

Claims filed against insurers are not the main culprit behind West Virginia’s homeowner insurance woes, according to a report issued to lawmakers Sunday by the state insurance commissioner.

Instead, catastrophes involving hail, windstorms and other forces of nature “appear to be the principal driver of the recent rise in homeowner rates,” the analysis concluded.

Commissioner Jane Cline’s office examined homeowner claims filed between 1997 and 2002, the latest year for available data. She presented her findings during the interim meeting of a joint select committee assigned to study insurance issues.

“With the exception of 1998, West Virginia’s claims frequencies correspond very closely with the countrywide claim frequencies,” the report said. “It appears that high claim frequency is not a major cause for poor West Virginia homeowner results.”

The report singled out 1998 as well as 2002 as “catastrophe years” for state claims, primarily because of hail and windstorm damage. Natural disasters caused “abnormally higher loss adjustment expenses” in both years.

Excluding those catastrophes, the report concluded that the severity of claims filed in West Virginia “are very comparable to countrywide.”

Besides catastrophic losses, the report also found that insurers did not set rates “adequate to cover the exposure written.” Residents of 41 other states paid more than West Virginians for home insurance in 2001, the report said. Even when adjusted for the state’s low property values, its policy premiums were cheaper than the national average.

The major providers of home insurance in West Virginia have since increased their rates, in some cases repeatedly. State Farm, the largest provider, and other insurers have stopped selling new policies. Some have quit the state entirely.

Cline said policyholders in border counties now see differences between what they and their neighbors in surrounding states pay. A $75,000 home policy costs, on average, $401 a month in Martinsburg, for instance. The same policy costs $350 in Cumberland, Md., and $340 in Winchester, Va.

“Something’s wrong, something’s bad wrong,” said Delegate Eustace Frederick, D-Mercer, whose district has seen a similar contrast.

Insurance lobbyists have called for limits on lawsuits. The industry has targeted a state law that allows nonpolicyholders to sue insurers for allegedly failing to resolve claims reasonably.

Cline said only six other states allow this type of “third-party bad faith” lawsuit. After Sunday’s meeting, she said she believed the threat of these lawsuits has prompted insurers to settle claims when the underlying policies should have excluded them.