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Fri Sep 7, 2012, 04:49 PM

State Farm to increase homeowners’ rates by up to 20 percent

State Farm Lloyds said it submitted a rate filing to the Texas Department of Insurance today that will result in its Texas customers seeing increases in homeowners insurance premiums of an average of 20 percent.

The changes will be effective Nov. 1 for new customers and Dec. 1 for existing customers.

State Farm said the changes are coming because of the volume of claims and increasing costs per claim. Roofing prices alone have spiked almost 90 percent in the past five years, the company noted in a news release.

“No state has more severe weather events than Texas, and no part of our state is risk-free,” Phillip Hawkins, senior vice president of State Farm Lloyds, said in the release. “Our policyholders are vulnerable to significant losses caused by high winds, hailstorms, hurricanes and wildfires. State Farm Lloyds must maintain its financial strength in order to keep our promises to our policyholders, so we can be there when they need us.”


[font color=green]Disclaimer: I previously worked for the Texas Department of Insurance and in the private insurance industry. It is not my intention to discredit or malign State Farm, but to note a possible trend in homeowners' rates that may affect all insurance companies in Texas.

It should also be noted that the following rate case dating back to 2003 has not been resolved:

State Farm vs. State Insurance Commission Battle Continues

3 replies, 2006 views

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Reply State Farm to increase homeowners’ rates by up to 20 percent (Original post)
TexasTowelie Sep 2012 OP
TreasonousBastard Sep 2012 #1
TexasTowelie Sep 2012 #2
TreasonousBastard Sep 2012 #3

Response to TexasTowelie (Original post)

Fri Sep 7, 2012, 05:10 PM

1. If you worked in the industry, you may know what I mean when I mention...

reinsurers have been burned horrifically-- even moreso than when I got out of the business 20 years ago while trying to get reasonable treaty conditions. We had to hold a lot more risk ourselves and couldn't live off of the float and overriding commissions any more.

Long gone are the days when you could just lay off risk and happily live with 110% loss ratios. All those classes about how to rate a risk started to mean something. And the policyholders howl-- not knowing how good they used to have it.

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Response to TreasonousBastard (Reply #1)

Fri Sep 7, 2012, 11:24 PM

2. I agree with the points that you made regarding reinsurance and the upward pressure that has been

placed upon premiums. The fact that investment income is reduced has also resulted in a need to obtain additional premiums. Thus consumers enjoyed a double-bonus from the reinsurance and investment income markets for several decades, therefore underwriting standards were in effect somewhat lax and insurers could take a chance on obtaining new business and offering discounts to retain current policyholders.

I am concerned about the possible rate increases coming to property owners, but I also understand the necessity of insurers making a profit. After all, we want the insurance company to be there for us when it is necessary to file a claim. Considering the other administrative expenses of insurance companies, the loss ratio better be around 60-65 in order to get a combined ratio less than 100 which would make the insurer profitable.

I am not an actuary, but I am interested how the rate filings for State Farm measure both case reserves and IBNR (incurred but not reported) in their projections. While I did not specialize in homeowners insurance, my work in other property & casualty lines revealed consistent over-reserving particularly in the case of IBNR which I usually considered to be SWAG (a scientific wild-assed guess). My conclusions were based on analyzing incurred losses (paid + case reserves + IBNR) by policy year and comparing it to ultimate incurred loss paid after several years (sometimes over 20 years for long-tail lines of business). There is a some leeway in those calculations which could lead to rate increases that are excessive.

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Response to TexasTowelie (Reply #2)

Sat Sep 8, 2012, 12:09 AM

3. In New York, overreserving has consequences...

but I don't know anything about how they do it with rate filings.

In Ocean Marine, we had cargo claims coming in from warehouses in Pakistan and vessel liability claims coming in from everywhere else. IBNR from fire and auto polices, or even most commercial lines, sounds pretty simple compared to that.

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