Homeowners Insurance Claims, Loss Costs Declining, LexisNexis Report Finds

October 27, 2016

A study of home insurance trends reveals good news for home insurance carriers: homeowner claims continue to decrease and loss costs are flat or on the decline.

The 2016 LexisNexis Home Trends Report notes that while the U.S. has already seen one major hurricane in 2016, overall loss across all perils declined by 30 percent from 2010 to 2015, driven largely by fewer claims and catastrophic events.

The study also found that claims spiked on average 46 percent in the spring time period, though the severity of claims tends to hold steady throughout the year.

Geographically, loss costs from peril claims are highest in the Midwest due to the higher loss cost states making up “Tornado Alley,” which based on peril claims should be more aptly be named “Hail Alley” due to dollars lost per house, according to the report.

George Hosfield, senior director, Home Insurance, LexisNexis Risk Solutions, said the new Home Trends Report provides carriers with valuable insights so they can better assess properties and price accordingly.

Other findings from the LexisNexis Home Trend report by peril include:

  • Wind – Overall wind loss cost declined dramatically by 53 percent from 2010 to 2015. Catastrophic wind events declined over the past five years, dropping 20 percent, with the majority of claims generated in the Midwest. One key takeaway for carriers: efforts to increase deductibles and the introduction of Actual Cash Value Roof Endorsements in some areas appear to be having a positive effect.
  • Hail – For hail, overall loss cost declined 26 percent in the same time frame. Hail claims spiked by 50 percent in spring and summer, with a dramatic increase from April through June, making hail the second primary factor driving overall lost cost during these months.
  • Fire – Loss costs from fire have been in a steady decline, and overall loss across seasons is fairly level. But this steadiness belies the fluctuations in causes and claim severity. While fire frequency has declined, claim severity is up to compensate for frequency’s effect on overall loss cost. The drastic reduction in claims is likely due to better fire prevention technologies. Seasonally, fire peril can be grouped into two main causes: lightning and flame. Lightning causes spikes in summer while flame peaks in winter months, but contrary to popular industry belief lost cost holds steady across the year.
  • Water – Loss cost for non-weather related water remained steady, and seasonal loss cost trends were relatively stable throughout the year as well, with a slight spike in summers. On the other hand, weather-related water increased by a dramatic 156 percent from 2010 to 2015. This peril is highly seasonal, dominated by winter weather. While the country as a whole suffered more than usual from winter weather, the Northeast region in particular experienced dramatic losses.
  • Theft – Loss cost due to theft steadily declined by more than 50 percent over the past five years, with speculation that theft claims have decreased as the economy continues to recover.
  • Liability – Liability loss cost has dropped rapidly in recent years as has the severity of claims. The drop is largely due to unpaid, high-value claims which tend to have long lag times until payment. Liability claims rise in frequency in the summer, suggesting that summer-related activities incur a higher risk of injury and damage compared to other times of the year.

For more information, download the 2016 LexisNexis Home Trends Report.

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