Tornadoes Raise Home Insurance Rates in Missouri

Even Missouri residents who lived nowhere near last year’s deadly tornadoes are writing bigger checks to insure their homes.

The state Department of Insurance reports that premiums increased 5 percent between July 2011 and last month. The figure is based on an analysis of rates charged by insurers covering 80 percent of homes.

The St. Louis Post-Dispatch reported that although insurers used to be more worried about hurricanes on the coast, tornadoes have been getting more attention as they cause more damage. The worst of last year’s tornadoes was the massive one that hit Joplin, killing 161 people and destroying much of the city.

Insurance ratings company A.M. Best said earnings for property and casualty insurers dropped about 40 percent last year to $11.7 billion as “catastrophe-related losses wreaked havoc.”

“Insurers are starting to say, ‘maybe this is the new normal,”‘ said Steve Weisbart, chief economist for the Insurance Information Institute, an insurance trade group. “They’re building into rates a little more margin for catastrophic loss.”

Still, the Post-Dispatch reported that damages alone don’t tell the full story and that the hike this year is actually lower than in previous years. The department said “base rates,” which are rates before any discounts, rose 14 percent in 2009 and 9 percent in 2010 due in part to poor returns on investments.

Insurers are taking other steps to lower their disaster losses beyond simply raising rates. One trend is percentage deductibles that require homeowners to pay a fixed percentage of any loss, says Weisbart. They differ from more traditional fixed deductibles in which homeowner pay a certain dollar amount with the insurance company paying everything else up to the policy limit.

In Missouri, regulators also are seeing some insurers move away from coverage that replaces damaged property with new property. That could mean that a homeowner whose roof is blown off might get a check for the value of an old roof, even if it costs more to replace it with a new roof.

“It’s really up to the consumer to do their own homework,” says department spokesman David Owen.