Insurers enact major, 300% rate increases for earthquake policies

Insurers enact major, 300% rate increases for earthquake policies

Insurers enact major, 300% rate increases for earthquake policies Oklahoma’s leading insurance regulators have expressed concern over significant rises in earthquake insurance premiums, fueled by a market that has become increasingly concentrated.

State Insurance Commissioner John Doak held an Insurance Department hearing earlier this week, warning that if Oklahoma were to experience a major quake, the event would be catastrophic.

“If Oklahoma was to have a 7-point or 7.5 earthquake, you could well be looking at a catastrophic loss and we could also be looking at a concentration of carriers,” Doak said.

He stressed that as an insurance regulator, it was his duty to make sure risk for events like these is spread among multiple companies so carriers can remain solvent and pay out claims.

But this could be in danger as the market has shrunk to just a handful of personal lines carriers in the past five years, according to data compiled by the department. In fact, the group found that just four insurance companies claim 55% of the state earthquake insurance market.

The consolidation comes at a time when the total amount of earthquake premiums written in Oklahoma has nearly tripled, from $7 million in 2010 to $19 million in 2015.

With fewer insurers in the pool and large rate increases ranging from 4% to 300%, insurers are making more than ever in the earthquake market. And claims paid are low, too – out of about 1,094 claims for earthquake damage since 2010, insurers paid only 208. That’s just 19%, the Insurance Department said during the hearing.

Earthquake insurance policies typically have high deductibles of 10% to 20%, meaning insurers must only pay out in catastrophic conditions.
Now, Doak is hoping to determine whether the marketplace has become uncompetitive. If it has, he will decide whether to place increased regulation on earthquake insurance writers in the state.

Under Oklahoma’s “use and file” system, insurers do not have to receive approval from the state before raising rates.
  • J. Ezersky 5/26/2016 6:30:18 PM
    This commissioner is a well-meaning fellow, and companies, esp. the large ones, do need to be slowed when it comes to indiscriminately jacking up premiums where almost no claims have been incurred. He has the right mindset.

    This is what happens, a la Obama's PPACA, when almost all of the carriers depart, leaving a handful of remaining companies, like in the health insurance arena's numbers- where a virtual monopoly exists. Collusion results.

    We all need competition- consumers, companies, agents. As the proliferation of earthquake frequency continues, and consumers seek out earthquake insurance, fewer companies will offer it, and then the handful of companies that do will take over the entire P&C market. Sound nice?

    Just like in health insurance, I do believe that the State should be the "insurer of last resort:" if companies don't want to offer the coverage, be it earthquake or health, let the States offer it- not on a heavily subsidized giveaway, but just for availability. Reinstitute the State High Risk Pools for health, for example.

    That kind of "backward pressure" is needed, when carriers abuse situations, and when the Federal government decides to bully its way into an insurance arena with massive, burdensome regulations. We need a balance.

    This way, if companies want to cherry-pick their way right out of a market? So be it, but don't kill them with bureaucratic insanity, either.

    Another idea I have for earthquake insurance is a stop-loss protection for companies: you cannot reasonably expect a medium-sized company to be subjected to a potentially monstrous loss. When Obama & Gang instituted an unlimited risk/claim for health carriers, they- disappeared, except for a few, which are dwindling down to zero. That's how you destroy a market.
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