The slower-than-expected hurricane season comes as especially good news since insurers were bracing for another active year. Hurricane experts predicted as many as 17 named storms to make landfall in 2006, but as the June 1 to Nov. 30 Atlantic hurricane season drew to a close, only two tropical systems had hit the continental United States.
The lack of activity has translated into a windfall for insurers. According to the Insurance Information Institute, or III, an insurance trade group based in New York, property and casualty insurers are on track to register record after-tax net income, with $56 billion in income so far this year -- a 22 percent jump from last year.
That performance has received a tentative nod of approval from Wall Street. Property casualty insurers' stocks are up 6.84 percent on average for the year, just a few points behind the S&P 500 index.
"Wall Street realized this was a great year, but they also recognized that we are not out of the woods yet," says Michael Barry, spokesman for the Insurance Information Institute.
Unfortunately for consumers, however, record-breaking income for insurance companies did not translate to lower insurance premiums. In fact, nationwide homeowners insurance costs jumped, on average, 4 percent in 2006 to a nationwide average of $739 per household.
If you live in a hurricane zone, costs took an even steeper increase. Depending on where a house was located, homeowners along the coast saw increases of 20 percent to 100 percent. Some state insurers of last resort hiked rates even more.
The force behind those rate hikes is a combination of tighter underwriting rules and something called reinsurance.
Reinsurance is a type of insurance taken out by insurance companies to protect them from worst-case scenarios, like Hurricane Katrina.
In 2005, reinsurance companies picked up 45 percent of hurricane losses. That means reinsurance companies paid out about $2.59 for every $1 they charged in premiums.
As a result, reinsurance rates charged to insurance companies with exposure in hurricane-prone areas jumped 100 percent to 300 percent. Nationwide, reinsurance rates are up 20 percent to 30 percent on the year.
Since insurance companies are forced to pay more for their safety net, they pass along much of the cost to consumers.
And the pressure isn't just on homeowners policies.
Commercial insurance rates are up as high as 500 percent in some heavily hit Gulf Coast states, such as Louisiana, says Jim Donelon, insurance commissioner for Louisiana.
"If you are a small-business owner, a rate hike of 500 percent is just unbearable," says Donelon.
In addition to raising rates, insurance companies are also putting tighter restrictions on what they will cover. For example, Barry says insurers are forcing homeowners in some markets to install hurricane-resistant upgrades, such as storm shutters, before they qualify for insurance.
In other markets, such as the highly exposed southern Louisiana coast and some areas of Florida, insurers are pulling out all together, Donelon says. "We are in a very hard market," he says.
When insurers are looking to renew policies along the coastal United States, they are now taking entire regions into account, rather than considering each state as a separate market.
"The insurance market looks at the entire Gulf Coast as one hurricane alley," Donelon says, adding he hopes a few more inactive years like 2006 will be enough to convince more insurers to move back to the coast and begin writing policies again.
"With some good fortune and some more willingness of the industry to re-enter those markets, prices will stabilize the way they did following the Sept. 11 terrorist attacks," he says.
Aside from homeowners and commercial insurance, other insurance costs stayed comparatively under wraps in 2007.
Auto insurance, for example, saw an increase of just a half percent in 2006, significantly less than the rate of inflation. Analysts at III attribute that tempered increase to a declining number of auto accidents, safer cars, new auto theft technology and fraud-fighting efforts.
Health insurance also took a comparatively modest increase during 2006. According to a study commissioned by the Kaiser Family Foundation, health insurance premiums increased by 7.7 percent. And while that is more than the rate of inflation and almost twice the rate of wage increases for 2006, Donelon points out it is a smaller increase than both 2005 when costs increased 9.2 percent and 2004 when costs jumped 11.2 percent.
"That's still too high, but it's still better than the double-digit increases we experienced for decades," Donelon says.
Increased federal Medicaid reimbursement rates make up part of the equation that helped relieve some pressure on the private insurance market, he says, which helped temper price increases.
"Whatever the reason we welcome the relief," he says.
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