Professional Independent Insurance Agents of Illinois (PIIAI) Responds to Recent Developments in the Homeowners Insurance Market

(August 6, 2002)-Last week, State Farm Insurance announced that the company's agents would no longer accept new customers for homeowners insurance in Illinois as of August 1st. The move leaves many wondering what the impact on the state's insurance market will be.

Recent conditions in the personal lines market, especially homeowners, have caused many companies to implement rate increases, coverage limitations and mandatory deductible increases, although no other company's response has been as extreme as State Farm's.

"An increases in the number and cost of catastrophes combined with investment losses and a recent surge of mold claims in some states has contributed to the condition of the market," said Michael J. Tate, Chief Operating Officer of the Professional Independent Insurance Agents of Illinois (PIIAI). "Damage from natural catastrophes such as hail, wind and flood waters has been on the rise due to more frequent and severe incidents. Recently, water damage from ice damming, hailstorms and flooding throughout the Midwest, combined with the rising cost of home repair has had a serious impact on the price of homeowners insurance."

As both industry and consumer awareness about mold is raised, an increased number of mold claims have been submitted, especially in states like Texas-where the number of mold claims has increased by more than 1,000 percent in the last two years. With the escalating number of claims and extraordinary jury awards in several high-profile cases, mold has become a growing burden on the homeowners market.

With such a dramatic increase in claims, companies are forced to raise homeowners rates, and in the case of some companies, place restrictions on new and existing business.

"Historically, homeowners products have provided the consumer with a premium product and a wide variety of coverage at a discounted price. The industry has used homeowners as a loss leader for the consumer for many years. Unfortunately, the industry can no longer continue this practice due to the escalating loss ratios," said Tom Turner, of the Robert Turner Agency in Jacksonville.

Instead of raising rates and restricting new business, some companies have been requiring policies to be sold as a package (home and auto) and raising deductibles on their policies. "As an agent," said Turner; " I would like to see the industry address the problem with a proper rate rather than a mandatory deductible. Let's let the consumer decide if he wants to pay additional premium for a lower deductible."

Most consumers, accustomed to the low premium prices of the past few years, are stunned when they learn they must pay additional premium to keep the same coverage and deductibles they currently have. Even those without losses will find that after years of relatively flat pricing, their insurance premium is rising due to overall market conditions. Agents have been fielding numerous calls from policyholders searching for lower rates after being hit with increases on their homeowners policies. While independent agents are always looking for ways to better serve their customers, some say that most consumers should just wait out the storm. If a policyholder has not experienced an abundance of losses, it is likely that consumer is already paying the best rate available.

Despite the actions of State Farm, most independent agent companies are still available to write homeowners insurance.

Consumers looking to purchase a homeowners insurance policy may contact their local independent insurance agent, or visit www.chooseindependent.com to locate an agent in their area. The site also contains general insurance tips and information on how to reduce homeowners insurance premiums.

The Professional Independent Insurance Agents of Illinois is an association representing independent insurance agents throughout the state. PIIAI membership is comprised of 1,500 insurance agencies representing 12,000 licensed independent agents engaged in all facets of the insurance industry, including property, casualty, life and health. Its members are businesses that offer customers a choice of policies from a variety of insurance companies. In addition to serving the professional needs of members, PIIAI works for the betterment of the insurance industry through legislative and consumer awareness programs. The PIIAI is headquartered in Springfield, Illinois. Visit PIIAI's consumer website at www.ChooseIndependent.com or agent website at www.piiai.org.

For more information, contact Jennifer May at (800) 628-6436, ext. 3020.

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