Report: Mississippi Insurers Not Overcharging Coastal Residents

Results of Mississippi’s Clarity Act Data Call are in and they confirm what insurance experts in the state say they already knew: insurers are not overcharging coastal residents in Mississippi. In fact, many Mississippi homeowners insurers are actually losing money in both the coastal and inland regions of the state, according to data released by the Mississippi Insurance Department (MID).

MID released its analysis Dec. 16 based on data submitted by homeowners insurers in the state under the new Mississippi Property Insurance Clarity Act. The Clarity Act was passed by lawmakers in 2015 as a way to obtain a geographic comparison and market analysis of homeowner insurance premiums and losses in the state.

Proponents of the Clarity Act said coastal residents in Mississippi have been forced out of the private market and into the state-run windpool because their homeowners insurance rates are too high.

The summary of the MID Report states the findings were that “no one particular region is subsidizing another,” and in actuality, costs for homeowners insurers in the state are higher than the premiums they are charging.

“Insurers’ return on net worth in the Mississippi homeowners’ insurance market has been comparatively unattractive over the last 25 years, and in both coastal and inland areas… premiums are lower than costs,” the report states.

Insurers operating in Mississippi were required to submit rate info and other pricing details from 2005 through 2014 to MID by Oct. 1, 2015. The required information included: direct incurred losses; direct earned premiums; policy limits; reinsurance; allocated loss adjustment expense; and the number of policies in force by earned house years by policyholder zip code. The data was reported in three policy categories: homeowners policies that include windstorm coverage; homeowners policies that exclude windstorm coverage; and all policies that only include windstorm coverage.

The report, compiled by data collected and analyzed by MID and independent global consulting firm Alvarez & Marsal Insurance and Risk Advisory Services, found that the Mississippi homeowner insurance industry’s returns on net worth over the past 10 years (-26.8 percent), and 25 years (-9.6 percent) are far lower than both the national homeowners’ insurance industry and other industries.

“Even excluding the year of Hurricane Katrina (2005), the Mississippi homeowner insurance industry’s returns are still far below the average returns of other industries,” the report states.

The report also examined the combined ratio for both coastal and inland homeowners policies and found that the combined ratio for the actual and modeled approaches in both regions is greater than 100 percent, which “indicates that insurance companies’ incurred costs are more than premiums earned.”

In the coastal region the report found that combined ratios indicate premiums have been less adequate than the inland region over the past 11 years when compared to actual costs. Unsurprisingly, the report says coastal costs have been higher than inland costs because of the increased hurricane risk on the coast. As a result, coastal residents have paid higher premiums than inland residents. The majority of Mississippi zip codes have also had an average combined ratio greater than 100 percent.

The results are in line with what industry experts predicted.

“Rates are decided by actuarial determinations and losses, which take storms into account. They aren’t going to find that coastal residents are paying more than they should be,” said Joe Woods, vice president of State Government Relations for the Property Casualty Insurers of America (PCI) after the Clarity Act was passed last year.

Woods says now that the report shows that Mississippi is not a profitable market for the insurance industry, either in coastal or inland areas.

“The whole purpose of the [data call] was the political charge from coastal legislators that they are subsidizing the rest of the state,” Woods said. “I think [the findings] put that assertion to rest.”

PCI said in a statement the results prove the industry has supported policyholders in the state, despite unfavorable conditions, including severe storms and Hurricane Katrina, which devastated portions of Mississippi.

“The report also shows that across the state premiums are lower than actual costs, which demonstrates how insurers are trying to control costs for consumers,” Woods said.

Woods said the industry has also supported legislation recently enacted to strengthen building codes in Mississippi.

Mississippi State Representative Scott DeLano, who authored the bill that ultimately became the Clarity Act, said last year the goal was to see how Mississippi homeowners rates differ based on where they live so policymakers could “understand how policies are being written by private insurers versus the state run pool in certain geographical areas.”

He said the hope was the data would help the state improve rates for coastal homeowners so they can move out of the state windpool program and back into the regular insurance market, which would in turn provide more business to insurers in the state.

“By giving data by geographical area we can look at this longitudinally and see what gains we are making in getting private insurers to write in these higher risk areas,” DeLano told Insurance Journal last year.

DeLano did not respond to a request from Insurance Journal to comment on the results.

Woods said insurers were confident before the report came out that their rates were fair, and he doesn’t expect insurers will “take a knee-jerk reaction” and raise rates as a result of the Clarity Act report. And while right now they are covering properties that aren’t profitable, there are years where they do make a profit.

“They wouldn’t be writing coverage and taking the losses they are taking here now if they weren’t taking a long view of the market,” Woods said.