home insurance payout ratio

"Beliavsky" wrote

I agree it's worth wondering, but as you and others probably know, it seems to me there's a question of whether folks are making more claims, and also somewhat more questionable claims, these days, too. Seems to me I have read that this has been the case in recent years.

That is possible, but it is hard to believe that "more questionable claims" account for a difference between 79% and 58%. Of course, insurance companies seem to regard many claims about wind damage from hurricane Katrina as questionable. They might prefer to put them in the category of flood damage, meaning less or no payout. But such logic on the part of insurance companies is Questionable (with a capital Q).

If it is possible to collect statistics about payouts declining from 79% to

B- Haven't see the article but just those stats aren't compelling, there's a cycle to payouts based on catastrophic events. Given that 2006 was such a slow year for storm claims (no hurricanes hit the US), I'd expect US home insurers' loss ratio to be unusually low that year. Especially because of all the premium increases and changes in underwriting after Katrina. In P&C overall there has been a change in pricing for storm risks, because of higher storm activity. Allstate specifically made some big changes and even got out of higher-risk markets. More premium, fewer claims, and you get to 58%. Two major hurricanes, a 6.5 quake, or a big fire season and it goes the other way.

It may well have overshot but only if it stays low for an extended period would it be an issue. And if it's too high...competition should weed that out in the form of lower premiums. The most I'd say is "shop your policy" but foregoing home insurance is for most people an unacceptablly large risk.

-Tad

Has anyone examined this on a smaller scale like car insurance? I just paid off my car and I've been seriously considering dumping the collision and comprehensive insurance. If I totalled the car or it were stolen, how badwould it be? Well, it would certainly suck, there's no doubt about that. But honestly, it wouldn't be that big of a deal. I would just go out and buy a new car. Or maybe a used one. But I wouldn't be ruined, financially.

On the other hand, the insurance only costs me about $10 / month (I'm with USAA). So it's not like dumping it is going to save me a lot of money.

There was a similar thread about a year ago about dental insurance. Elle, didn't you start that one? Someone was asking whether or not it would better to just take the money you would put toward dental insurance premiums and save them to pay for dental work, yourself. Made sense to me.

--Bill

Would more claims affect this particular statistic?

-Will

True and this statistic said nothing about rejecting any claims. Thumper

premium income as claims in 2006, compared to 79% in 1996.

The article is now online at

You didnt add in investment return which can be considerable. On the life insurance side, a popular hook now is promise to refund all the premiums after a certain term because they make more the premiums and insurance payouts.

A series of more-expensive catastrophic events (on the scale of Katrina) could well lead to much more expensive pricing of homeowner's insurance, to finance the mega-events that may occur over the next 10, 20 years. Payout ratios would look even lower than they are today. Not because of price-gouging, but because of the higher cost of reinsurance. The article implied that these big events may be beyond the claims-paying ability of private insurance.

-Tad