One of the most often asked questions by reporters after significant disasters such as the spring 2011 tornadoes is, “Are insurance rates going up?”
The question seems to be a natural conclusion when millions of dollars in damage occurs in any given community. What often surprises reporters is the answer. The short answer is “no,” but other factors can cause confusion and misunderstanding.
In Georgia, the state’s insurance commissioner and his staff regulate insurers including a process for submitting rate increases or decreases. In order for a rate increase to be approved, the company must submit a rate request form that, among other things, gives the company an opportunity to mathematically justify the rates requested based on several factors that include previous years of experience in the state.
This is a key factor because “previous” is not what happened two or three months ago, but what has transpired over the last 10 to 15 years. Insurers must provide considerable data to justify why an increase in rates is justified, and insurers smooth out the high variability of weather losses by studying many years.
What sometimes creates the misperception of rates being affected is that the Insurance Department may grant a rate change shortly after a significant disaster that had been under review since months before the recent disasters.
To the media and some in the public, the rate increases appeared to be related to the recent catastrophes, but in fact, one had nothing to do with the other.
Georgia has the benefit of a very aggressive property and casualty insurance market due to the number of companies that do business in the state. That is very good for consumers from a competitive standpoint.
In the last few years, we have all seen a significant decline in the real estate market, and news reports continue to report decreases in the market value of virtually all homes.
While that reality is very disappointing to all homeowners, the market cost of a home is not related to the cost to rebuild or significantly repair a damaged or destroyed property following a devastating storm, fire or other calamity.
Homeowners and renters also face the complex issue of determining what personal possessions were destroyed or lost in the event. This is why both homeowners and renters who obtain renters insurance must have an accurate home inventory to speed up the recovery process since documenting what was lost is necessary.
What those who are affected by significant weather events, fires or even major burglaries know is that documentation is vital and it takes time to get back to “normal.”