Why are insurance rates going up?

Maybe all you people in the People's Think Tank can help me understand this story about a hike in homeowner's insurance rates.

North Carolina homeowners' insurance premiums will rise an average of about 4 percent -- not the 19.5 percent increase that insurers requested earlier this month. A settlement between state regulators and the insurance companies was announced Thursday. As expected, homeowners along the coast will get a much larger increase: an average of 18.7 percent, and as much as 29.8 percent in some areas.

I suppose we should be thankful that a 19.5% increase didn't go through, but everyone knows that was just a negotiating ploy in the never-ending bid by the extortion industry to maintain margins. That said, I still don't see the bigger picture. At a time when the price of almost everything is going south, led by declines in the price of oil and in the price of housing, what possible justification can there be for an increase in insurance rates?

According to Insurance Commissioner Long:

"We've reached a settlement that is fair to both consumers and insurance companies," Commissioner Jim Long said in a prepared statement. "No one likes to see their insurance rates go up, but the industry made a strong case for allowing some increases this year. The silver lining is that most consumers won't see nearly the increases that were initially proposed."



Trying to see the other side

Insurer's costs must be going up. Weird to think about - but health insurance went up, so their costs for their employees went up. While the value of homes and the cost of gasoline has gone way down, costs for other things -- electricity, paper, pens, everything that offices run on -- has gone up.

I'm not saying that I like the increase. I'm hoping it doesn't affect my rent. I'm just trying to see both sides.

Not sure

If you buy the idea that we're entering a serious deflationary period, we should expect to see declining prices across the board. Wages are down in real terms, consumer products are being discounted as never before, the cost of fuel that goes into products is declining, as is the cost of labor, with companies are laying off people right and left.

I tried to see both sides, too, but that "other" side looks like monopolistic profit-taking at first blush. Sure insurance companies want to maintain their margins, everyone does. But in most industries, that's simply not happening.

Culling the wheat from the shaft

That's what I believe is going on. If the insurance companies make premiums go high enough that you have many that will drop it or take less coverage, the wealthy ones are left. Fewer disasters up on the hill I imagine.

I used to buy hot dogs...

from Alan Holden and his brother at the Holden Beach pavilion. It's long gone now along with most of that side of the island. Alan's brother still runs the Beach Mart on the causeway. Alan has become a sinister character and is roundly despised locally.

National carriers are leaving NC. Fortunately, the woods remain full of NC-based mutual companies with nowhere to go. Almost all are exempt from the NC Rating Bureau and set their own rates.

Yeah, this is a crock

These companies claim that they aren't making enough to cover future (major) storm damage claims, but they did more than fine through Katrina & Rita and other storms:

“The insurance industry reaped record profits in 2004 and 2005, despite significant
hurricane activity,” said Hunter. “Profits in 2006 rose to unprecedented heights and 2007 may set a
fourth consecutive profit record,” he said. “Unfortunately, a major reason why insurers have
reported record-high profits and low losses in recent years is that they have been methodically
overcharging consumers, cutting back on coverage, underpaying claims, and getting taxpayers to
pick up some of the tab for risks the insurers should cover,” said Hunter

It is Partly the Developers

While I don't dispute the insurance companies are rack rating, a good deal of the blame should be laid at the feet of the developers who got NC to decline to adopt national standards on storm resistance near the coast. They claimed it would raise new home prices too much.

Say more.

I confess to not understanding the intricacies of insurance.