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Punxsutawney Phil's forecast bad omen for homeowners insurance rates

by Broderick Perkins

(2/2/2012) ERATE Exclusive - You didn't need famous groundhog Punxsutawney Phil to tell you to prepare for winter's worse.

But you do need to consider what the weather holds in store for your homeowners insurance rate.

When Phil emerged from his lair on Groundhog Day, Feb. 2, saw his shadow and doomed the nation to six more weeks of winter - or so the legend goes - many insurance companies had already filed for homeowners insurance rate hikes due to the weather that's already wreaked havoc.

Record weather-related catastrophes in 2011 and soft economic conditions have spawned the latest round of homeowners insurance rate hikes, according to A.M. Best Co., an insurance rating and information source.

The Federal Emergency Management Agency (FEMA) reports the nation suffered 99 major disaster declarations in 2011, more than any other year since FEMA began recording the statistic back in 1953.

The most notable declarations were due to Hurricane Irene slamming the Eastern Seaboard, along with Tropical Storms Irene and Lee. Also, devastating swarms of tornados twisted through the Southeast and Midwest last year, taking lives and destroying communities.

A.M. Best said, based on existing rate increase request filings, some insurance companies will raise homeowner insurance premiums by 18 percent or more in 11 states, including Alabama, Arizona, Colorado, Georgia, Kansas, Kentucky, Maine, South Carolina, South Dakota, Tennessee and Virginia.

Travelers Personal Security Insurance Co. raised one of its homeowners products 25.5 percent effective Dec. 23, affecting 50,000 policyholders. Three EMC Insurance Cos. subsidiaries in Alabama raised rates on specific homeowners lines about 20 percent effective Dec. 1, affecting 3,800 policyholders, Best reported.

In addition to disaster, falling profits also contribute to higher rates.

"When a company's recent underwriting results are profitable, it's very difficult for them to get a rate increase," said Raymond Thomson, an A.M. Best Co. senior financial analyst.

But there are steps you can take to weather the storm of higher premiums.

Reduce a disaster's impact. Retro-fit your home to better withstand the seismic forces of an earthquake, the gale forces of a hurricane or the burn threat of a wildfire . The Insurance Institute for Business & Home Safety offers more tips for reducing losses.

Shop smart. Don't shop for the best rate and then determine your needs. Know what coverage you need first, then go comparison shopping. Consumer Reports says annual premiums can vary widely. Check your state insurance regulator for rate comparisons as well as websites, including Insure.com, InsWeb and NetQuote.

Choose an insurance company rated "A" or "B" by Weiss Ratings available online at The Street.com. The more solvent a company, the less likely it will raise rates, according to Thompson.

Trim costs. Take on higher deductibles. Buy all your insurance needs (home, auto, health, life) from one company and get discounts. Keep your credit rating as high as possible. If your can't afford catastrophic coverage, check with your state's insurance of last resort program.

File smart. Don't make claims for small losses if you have high deductibles or can afford to pay for the damage out of pocket.

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