Holding down insurance rates

Arkansas legislators have been hearing from constituents about the rising costs of homeowners insurance premiums, so during the 2025 session they will explore numerous options for holding down rate increases.

At a recent meeting of the Senate and House Committees on Insurance and Commerce, top officials of the Arkansas Insurance Department briefed lawmakers on rising rates, and what other states have done to control them.

Several nearby states have begun mitigation programs, which provide financial incentives for strengthening homes to limit damage from during storms.

For example, in Alabama homeowners can apply for $10,000 to retrofit houses with features that can better withstand the high winds and flying debris caused by hurricanes. Insurance companies discount rates for homes with those features.

In Arkansas, wind and hail are the major weather events that damage homes. In recent years, eight insurance companies have stopped selling policies in the state. According to Insurance Department officials, Arkansas property insurance companies had a loss ratio last year of 130 percent. That means they paid $130 in claims for every $100 in premiums they collected.

The largest ten companies in Arkansas provide coverage for 75 percent of the market, according to the department. In 2022 those companies collected $1.3 billion in premiums but paid $1.6 billion in losses. In 2023 they collected $1.6 billion in premiums, but paid $2 billion in losses.

If we experience a relatively good year with few tornadoes and severe storms, insurance rates will flatten out or even decrease, the officials said.

Last year rates for insurance went up by an average of 15 to 20 percent. However, that is just a portion of the rising costs for homeowners. Some rate increases followed similar increases the year before. Also, companies raised the value of homes, requiring owners to purchase more insurance to cover replacement costs.

Deductibles have risen too. Another new development in Arkansas is the introduction of split deductibles, which means that a separate deductible applies to roof damage caused by wind or hail.

Arkansas was the last state in the country to allow split deductibles, which have been routine in other states. Deductibles must now be listed clearly on page one of policies, and no longer can be listed inside the policy where it is more difficult to find and comprehend.

Some options for holding down rates may not be practical, or possible, because they would conflict with the interests of banks and mortgage holders, or re-insurance companies.

For example, legislators on the committee floated the idea of allowing large deductibles of $20,000 to $30,000. Another idea would be to allow insurance that covers only what is left on your house note.

If you owed $30,000 on a $200,000 house you could purchase $30,000 of insurance and basically self-insure for the remaining amount. Those ideas may not be financially prudent for some homeowners, but legislators want to thoroughly explore and discuss all options for holding down rates.