This is the final part of a four-part look at the Commissioner’s Annual Report on Home Insurance in Massachusetts.
Since 1996, the DOI has been required to produce a home insurance report pursuant to M.G.L. c. 175 Sec. 4A & 4B. Unlike private passenger auto insurance, in Massachusetts, there are no laws requiring that a property owner have home insurance.
This final article deals with the previously uncovered sections of the Report including average premiums, claims, combined loss ratios, and cancellation statistics.
Average premiums for 2014 for Homeowner, Tenant and Condominium policies
In 2014, Massachusetts insureds purchased approximately $2.1 billion in home insurance, as measured in premium paid, which is 5.4% more than was reported for 2013. Of the total premium, 93% was for traditional homeowners insurance. Between 2013 and 2014, traditional homeowner insurance premiums increased by approximately $101.3 million.
As per the chart above, between 2012 and 2014, the average premium for Homeowner insurance increased approximately 15%. The average premium for condominium increased 6.7%, during the same period. However, tenant insurance premiums actually declined 1.2%.
As shown in the chart below, on an absolute dollar-cost basis the only material percentage change appears on homeowner coverage since homeowner premiums makes up 93% of the premium dollars for the three types of policies.
In 2014, total condominium insurance premiums equaled only 5% of the total from homeowner insurance premiums, while total tenant insurance premiums only equaled 2.4% of the total from homeowner premiums.
Claim numbers, costs and types of losses
In 2014, insurance companies writing in Massachusetts received 18.5% less claims than in 2013 on home insurance policies. This reduced number still resulted, however, in a total of 64,237 claims as shown by the chart below.
While the total number of claims submitted decreased in 2014, the average size of these claims increased as shown by the chart below.
The average homeowner insurance claim increased by $3234.00 or 29.7% from the average claim cost in 2013. The average condominium insurance claim increased by $1380.00 or 29.3 % from the 2013 average. The average tenant insurance claim increased the most, as a percentage at 36.8% with a dollar increase of $1578 over the average tenant insurance claim cost in 2013.
These increases occurred even though there had been no major catastrophe losses similar to the 2012 $210 million loss occasioned by Hurricane Sandy. The Division did note, though, that there had been two catastrophe losses occasioned by significant weather conditions but these losses had only totaled $81.1 million.
Water was the claim filed by most policyholders in 2014
Of the total number of claims submitted in 2014, 32,791, or 51.4%, were classified as non-flood related water damage and freezing. This large percentage primarily reflects water damage associated with winter cold snaps.
Policyholders also submitted 5,531 claims for fire, lightning and removal damages and 8,603 claims for damages classified as “all other losses,” accounting respectively for 8.7% and 13.5% of total claims filed. There were a total of 8,820 claims filed under the wind category, which represents 13.8% of total claims filed. All as shown in the chart below:
The following chart illustrates the dollar cost of claims and shows that relatively less frequent types of claims (e.g, fires) have a higher average claim cost. in 2014, fire losses decreased from 37.6% of all total losses in 2013 to 33.8% in 2014. Theft and liability losses decreased from 2.9% and 5.7% in 2013 to 2.2% and 5.4% in 2014, respectively.
a more detailed breakdown from the report on the above losses states:
- Fire, Lightning and Removal dollar losses as a percentage of statewide losses decreased from 37.6% in 2013 to 33.8% in 2014. The statewide average fire, lightning and removal claim cost was $51,039 in 2013, decreasing to $50,951 in 2014.
- Wind & Hail losses accounted for 7.9% of total losses in 2014, down from 9.5% in 2013. The statewide average claim cost for wind and hail increased from $5,441 in 2013 to $7,465 in 2014.
- Non-Flood Water Damage and Freezing losses accounted for 35.6% of total losses in 2013 and 43.0% of total losses in 2014. The statewide average claim cost for non-flood water damage and freezing increased from $10,195 in 2013 to $10,920 in 2014.
- Theft losses accounted for 2.9% of total losses in 2013 and 2.2% of total losses in 2014. The total number of theft claims decreased from 7,541 in 2013 to 5,708 in 2014, and the average statewide theft claim cost increased from $3,021 in 2013 to $3,225 in 2014.
- Liability and Medical Payments dollar losses accounted for 5.7% of total losses in 2013 and 5.4% of total losses in 2014. The average statewide liability and medical claim cost increased from $18,864 in 2013 to $19,355 in 2014.
- All Other claims losses accounted for 7.7% of total losses in 2014, compared to 8.7% in 2013. Total filed claims decreased from 9,431 in 2013 to 8,603 in 2014. The average claim cost was $7,290 in 2013, increasing to $7,464 in 2014.
Loss ratios and combined ratios
The Report’s review of the loss data submitted for 2014 on home insurance shows that the 2014 overall loss ratio for all FAIR Plan and insurance company policies was 40.3% across all types of residences (houses, condominiums, rentals). the following chart presents a history of the loss ratios for the entire market since 2005.
The following table from the Report seeks to calculate the combined ratio (the combination of company expenses and incurred claims costs divided by earned premium) as a measure of the generic financial results for insurance companies that operated in the Massachusetts home insurance market for the years 2010 to 2014. A lower combined ratio corresponds with a higher potential profit for the company. The table does not use specific information on insurance company operating expenses. The Division in compiling the tabulated data incorporated the industry expense data submitted as part of in the annual financial statements required of all insurance companies. using these numbers, the following chart calculates the percentage of premium that insurance companies paid out for Massachusetts home insurance losses and the percentages of premium that can be attributed to various operating expenses. The result is an “Adjusted Combined Ratio” for the Massachusetts home insurance market for the years in question.
Additional information in the 2014 report and its statistical supplement
This four-part summary of the Division of Insurance’s report on homeowner insurance to the Massachusetts Legislature covered some of the highlights from the report that we thought might be of interest to our readers.
The report also has additional information that we have not included that was of perhaps lesser interest and also the report references the underlying data that the Division used in compiling the report as a statistical supplement. The Report itself and the Statistical Supplement can be found on the Division’s web site. It is also available on request from the Division.