Oklahoma Commissioner: 4 Insurers Have 55% of Earthquake Market

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Data released at a May 24 hearing to determine the competitiveness of earthquake insurance coverage in Oklahoma shows that four insurance companies have 55 percent of the market in the state.

That’s a concern for Insurance Commissioner John D. Doak, who called the hearing after carriers filed significant rate increases, dropped lower deductible options or decided to stop writing new earthquake insurance policies.

“My number one priority is to protect the citizens of Oklahoma,” said Doak. “Due to several factors, including market concentration and very low loss ratios, I believe the Oklahoma earthquake insurance market may not be competitive. If true, we must take action to protect consumers.”

Data Presented

OID Market Regulation Chief Brian Gabbert released the following data at the hearing:

119 companies write earthquake insurance in Oklahoma
1,094 earthquake insurance claims were filed from 2010-present
208 claims, or 19 percent, were paid
Most claim activity occurred in 2011
Approximately half of the 208 paid claims resulted in payments less than $5,000
Insurers collected more than $76 million in earthquake insurance premiums from 2010-2015
Insurers paid out $4.3 million in claims from 2010-2015
Current pure direct loss ratio for all earthquake carriers since 2010 is 3 percent
OID has received 12 rate increase filings ranging from 4 percent to 300 percent since Aug. 2014
Five companies have stopped writing new business since August 2014

Under state law, property and casualty rates adhere to the “use and file” system. Under the “use and file” system, insurers may implement a rate increase then notify the OID after the fact. However, if the line of business is found to be “not competitive” the rating laws revert to a “file and use” system, sometimes called a “prior approval” system, where rates must be filed and draw no opposition from the Commissioner before they can be used.

Insurer Push Back

Insurance trade groups, such as the Property Casualty Insurers Association of America and the American Insurance Association, have weighed in against increased regulation.

In testimony submitted in advance of the hearing, the AIA urged mitigation rather than further regulation in order to alleviate concerns over lack of competition. While recognizing increased quake activity in the state in recent years, the AIA maintained that the market for coverage is competitive.

“Insurers appear to be adjusting to manage their risk, solvency and policyholder surplus while avoiding cross subsidization,” the group said.

Joe Woods, in a statement released by PCI (see below), said with 119 carriers offering coverage the market is competitive in Oklahoma.

“Consumers have choices if they are willing to shop the market,” he said.

With only around 10 percent of property owners choosing to purchase the product, the low take-up rate is concerning to insurers, however. “While we recognize cost is a factor in the purchasing decision for a consumer, in order to make the coverage available, insurers must charge rates that reflect expected losses,” Woods said.

“Companies have to be prepared for a Northridge-type earthquake,” he said. “More regulation is likely to make the market concentration situation worse because it puts more pressure on smaller companies that might just give up.”

AG’s Support

Julie Bays, Oklahoma assistant attorney general, praised the work of Commissioner Doak and said he “has the full support” of the AG’s office.

“Our offices work together to protect consumers and he’s done a fabulous job at that,” she said.

Doak said he will announce his decision on what action he will take, if any, in the next 30 days. In the meantime, the Oklahoma Insurance Department is continuing to host earthquake outreach events across the state. At these events, consumers can speak one-on-one with an OID representative.

The remaining schedule is listed below.

Perry