2011: Record-breaking natural disasters and Homeowners insurance
The National Oceanic and Atmospheric Administration (NOAA.gov) recently updated its list of storms that caused over a billion dollars in damage in the U.S. That number now stands at 12, more than the entire decade of the 1980s. There were massive tornadoes throughout the spring and summer, flooding along the Mississippi and Missouri Rivers, wildfires in Texas and Arizona, and of course Hurricane Irene. Internationally, the situation was even worse: the Wall Street Jourrnal reported recently that 2011 was the worst year ever for global weather related disasters, causing over $350 billion in damages, interrupting supply chains, and putting a drag on international economics.
Here in Massachusetts, we experienced our own destructive weather events in addition to one of the national twelve, Hurricane Irene. The long winter saw a series of storms through January and February causing traffic accidents on our roads and ice dams in homes that resulted in the most expensive winter damage in years. In June, tornados ripped through western Massachusetts from Springfield to Worcester, and in late August Hurricane Irene caused widespread wind damage, flooding and lengthy power outages. Most recently, the Halloween snow storm dropped a half foot of heavy snow on trees and power lines throughout central and northern Massachusetts causing more damage. It was a bad year for many home and business owners, and even worse for the insurance industry.
Insurance companies in Massachusetts are all licking their wounds from 2011, just wishing it will be over. At one prominent Massachusetts homeowners carrier, 2011 caused more losses than all their net income over the past ten years combined.
What’s this mean for consumers? And what can you do about it?
What it means is most property insurance companies, those providing homeowners and other building insurance, will be looking rates hikes in 2012. Because the damages from 2011 affected such large areas, companies that lost money aren’t limited to a handful: they all got hit. Looking forward, the cost of reinsurance, the insurance that insurance companies buy, is already trending higher as the effect of limited supply and higher demand drive those prices up. Thus, homeowners and other property insurance rates should rise for just about every homeowner across the state. We believe the average increase will be between 8% and 10%.
What can you do? Ask your broker or agent to shop your insurance. Some companies are raising rates more than others, and it pays to have a look at the market every few years anyway. Consider also opting for a higher deductible. If you’re willing to take a little more of the risk and share the pain of a loss, the insurance company will charge you less.
You can also take steps to protect your home directly. This makes sense expecially if you have a high deductible or want to protect the “no loss credit” you may already enjoy. If you have old trees in your yard that are hanging over the house, consider hiring a professional to trim them or cut them down altogether. Make sure your gutters are clear of leaves before the really cold weather comes. Longer term, the next time you have your roof reshingled, ask the roofer to install ice and water shield across the entire roof (to protect against ice dams). If your budget allows, consider having a generator installed to avoid food loss or to power that sump pump that keeps your basement from flooding.
The insurance industry is trying to figure out whether these more extreme weather patterns are a sign of things to come, or whether we’ve just had a couple bad years. The worst disaster year in 30 years previously was in 2009 and a look at NOAA’s chart of billion dollar events over the past 30 years strongly suggests a trend of more severe weather events ahead. Whatever the long term trend may be, the immediate trend of rising property insurance costs is just around the corner.
