Michigan Homeowners insurance costs jump
Michigan residents have seen annual premiums rise 85 percent since 2000.
Many Michigan residents are getting zinged this year with yet another increase in homeowners insurance rates, following a four-year period in which premiums jumped 85 percent.
The average annual premium in the state was $797 in 2004, according to the Insurance Institute of Michigan in Lansing. While the trade group doesn't yet have 2005 data, Metro Detroit residents such as Tom Patton already are seeing bigger bills.
Patton will spend $1,200 this year to protect his 2,000-square-foot home in White Lake Township. He says his premium has increased at least $100 a year for five years.
"It keeps going up, and it's really made me mad," said Patton, 47, a computer consultant. "I just think our state insurance regulators have been asleep at the switch."
While industry estimates vary, most experts concur that Michigan residents are paying at least $100 more than the national average.
A number of factors have pushed up the price of insurance this decade, according to Peter Kuhnmuench, executive director of the Insurance Institute of Michigan. The trade group represents insurance carriers that write two-thirds of the homeowner policies in the state.
Michigan was socked with $150 million in flood damage in 2004, the highest since 1986, Kuhnmuench said. An additional $100 million in damage stemmed from tornadoes and other severe weather. Insurers also have suffered investment losses since the stock market started to slide in 2000.
"The biggest driving factors, quite honestly, is the pure appreciation of home values and the cost to repair homes," Kuhnmuench said.
Kuhnmuench notes that the price of repairs nationally grew about 30 percent from 1998 to 2004.
During a 10-year period ending in 2003, insurers doing business in Michigan posted an average annual loss of 6 percent, compared to a national profit margin of 2.4 percent, according to data from the National Association of Insurance Commissioners.
"Even though you spent $50,000 on a home 10 years ago, it would potentially cost two or three times that much to rebuild it because of the soaring costs of materials and wages," he said. "The value of the asset has gone up and the cost to replace that asset has also gone up, and that's the driving factor behind rates."
Still, markets nationwide experience the same woes. In fact, home values in Michigan declined 0.5 percent last year, the first dip in a decade. Yet industry officials and experts can't say exactly why premiums in Michigan outpace the U.S. average.
Michigan's regulatory agency doesn't investigate why rates differ among states, said Andy Schor, spokesman for the state Office of Financial and Insurance Services, which oversees the industry.
"There's a lot of differences among state insurance laws," Schor said, noting that insurers doing business in Michigan can divvy up the state into as many territories as they wish to make rates more expensive in some areas. Some states, such as New Jersey, cap the number of territories, which leads to more uniform insurance premiums.
Insurance regulators insist the market is competitive because about 80 insurers write policies in Michigan, and rates do vary. But only a handful of the most well-known companies control the majority of the market, showing reluctance among homeowners to leave industry stalwarts.
Patton said he's been with Allstate Insurance Co. for two decades and last filed a claim five years ago, for $250. He's compared rates with other companies and says switching would save him $100 or less a year.
The state's insurance commissioner, Linda Watters, is calling for drastic changes to state laws to loosen regulatory controls, which she says are too restrictive.
Law limits regulations
Michigan's homeowners insurance is regulated by state law on a competitive basis. This means that rates cannot be considered excessively high, and the state cannot force a company to lower them, so long as there is competition among companies.
In a March report to the state Legislature, Watters said the law is "woefully inadequate as a tool for ensuring affordable rates or going after those companies found to be charging excessive rates."
Watters' recommendations, which lawmakers haven't acted on, grew from an analysis of Michigan's insurance market by the Office of Financial and Insurance Services. She suggests eliminating the law that requires a finding of an absence of competition in order for rates to be considered excessive. Her office also "should be given the authority to develop, promote and spend agency funds on a comprehensive consumer awareness program."
Consumer advocates want more from Watters and insurance companies.
"An eighty-five percent increase requires an investigation," said Rick Gamber, executive director of the Michigan Consumer Federation in East Lansing. "Our state insurance commissioner needs to get to the bottom of this and figure out what's going on. I want to know if these increases are from losses paid out, or if they're just jacking up the rates."
While losses are typically passed on to every policyholder, not just the ones who have filed claims, last summer's hurricanes and other out-of-state catastrophes don't directly influence rates locally, said Kuhnmuench.
He said he doesn't have enough data to forecast average rates for 2005.
When it comes to changing the law and forecasting lower premiums, the state is making no predictions either.
"I'd love to sit here and tell you we expect rates to come down, but we don't know yet," Schor said.
Consumers in the state gravitate to a handful of major companies for homeowners policies. State Farm Fire & Casualty Co., Home-Owners Insurance Co., Auto Club Group Insurance Co. (AAA), Citizens Insurance Co. of America and Allstate wrote 57 percent of policies statewide in 2004, according to the state.
On average, those companies raised their rates 29 percent in 2002, 6 percent in 2003 and 12 percent in 2004.
State Farm, the largest home insurance provider in Michigan, writes 19 percent of the homeowner policies in the state. The insurance giant pulled in $394 million of the $2.1 billion collected in homeowner premiums last year from Michigan consumers.
State Farm, which paid $179 million in claims across the state in 2004, lowered its homeowner rates by an average of 2 percent last year, but the reduction was preceded by double-digit increases for two consecutive years.
Home-Owners Insurance raised its rates an average of 5 percent in 2004; AAA lowered its rates by an average of .2 percent; Citizens increased its rates an average of 14 percent at the beginning of the year before lowering them by 5 percent toward the end of 2004; Allstate's rates were unchanged.
Shopping around
For now, experts say, comparison shopping is the key to finding affordable insurance. It worked for Doug Grover of Commerce Township.
Grover grew tired of watching the premium on his 1,300-square-foot home increase, even though he never filed a claim in the 10 years he was with Citizens.
After getting a handful of quotes, he settled on a policy with Foremost Insurance Co., but even that has gone up to $419 for 2005.
"It may be time for another look around," said Grover, a 63-year-old retiree on a fixed income. "It does pay to shop around."
The state publishes an annual buyers' guide that offers a list of companies selling insurance and comparisons that show rates vary widely.
A policy on a house in Warren insured for $100,000, for example, ranges from $365 with Centennial Insurance Co. to $3,161 with Grange Insurance Co. of Michigan.