Soaring home insurances costs in Oklahoma debated

OKLAHOMA CITY — Four companies that hold about 60% of the market share for homeowners' insurance in Oklahoma have not leveraged their dominance to push premium rates higher, Oklahoma Insurance Commissioner Glen Mulready insists.

Lawmakers who recently have examined issues surrounding rising insurance rates called attention to the fact that four companies — State Farm, Allstate, Farmer's and USAA — dominate the market in Oklahoma. Rep. Andy Fugate, D-Del City, said that position has given them too much power to set premium rates in the state.

"For all but one year in the last two decades, Oklahoma has had an insurance oligopoly and not a truly competitive market," Fugate said in a release following one of two interim studies on homeowners' insurance held this month at the Capitol.

Fugate and other lawmakers who took part in the forums raised questions about whether changes in state law might be needed to rein in costs.

"Without oversight, insurers are free to charge all the customer can bear," Fugate said.

Attorney General Gentner Drummond also has suggested that more stringent oversight may be needed.

"There is no justification for the unreasonably high insurance rates in Oklahoma," Drummond wrote in an email sent to Mulready in August. "Conveniently, insurance companies are using Oklahoma weather as a red herring to distract from their profiteering tactics."

Mulready, in an interview with the Tulsa World, responded that companies that collect the most in insurance premiums also pay out the most in losses, and in recent years those losses have made it generally unprofitable to insure homes. Over the past three years, he said insurance companies have paid out 10% more on losses than they've taken in in homeowners' insurance premiums.

"They've paid out $110 for every $100 they've taken in. That's the math that drives the rates, not the lack of oversight," he said.

State Farm, which has about 30% of the market share in Oklahoma compared to the next biggest company, which has about a 10% share, paid out even more on losses, he said. In the last two years, the company has averaged paying out $130 for every $100 in premiums it has received.

"This is Oklahoma specific," Mulready said.

He cited disasters spawned by fire, wind, hail and a record number of tornadoes — 152 reported last year alone in the state — as the primary contributor to soaring insurance rates.

But the unprofitability of the homeowners' insurance side of the industry is not unique to Oklahoma, Mulready said. He strongly disagreed with the contention that big companies may be jacking up rates in Oklahoma to offset losses in other states.

"Nationally, last year 36 states had average higher rate increases than we did," he said. "It is not just an Oklahoma problem."

Lack of competition

Lawmakers and the attorney general raised concerns that insurance costs in Oklahoma towns like Enid have been reported to be higher than they are in high-risk coastal parts of the country, and that Oklahomans must typically pay much more for insurance as a percentage of their home value than people do in other states.

"It's clear from this study that we don't have the laws and capacity in place to adequately review rates and ensure they're fair for Oklahomans," Sen. Julia Kirt, D-Oklahoma City, said after a forum on Oct. 8. "That has to change."

During the studies, lawmakers from both parties discussed "structural barriers" in current law that limit reviews and any public challenges of rate increases proposed by companies. They also discussed how the high market penetration of few providers may limit competition and how soaring premium rates have disproportionately affected fixed-income households.

One contributor to Kirt's study, Bob Hunter, a former Texas insurance commissioner and member of the American Academy of Actuaries, said Oklahoma is not a competitive market and that strong state policies are needed to make sure that companies are fair to consumers.

"The law as it is today stipulates the belief in the power of a competitive free market," Mulready countered. "If you have enough competition, the market will set the price level. I stipulate that we absolutely do have a competitive market. We have over 50 companies selling the same product."

Mulready said the report about premiums in Enid being higher than they are in places like flood-prone coastal areas of the country or parts of fire-prone California should be considered flawed, because private insurance companies have largely abandoned those areas and the only insurance that may be available must be subsidized by taxpayers. The insurance itself, he said, is still very costly and would not provide the level of coverage that policies might typically provide in Enid.

He said 38 states have laws similar to Oklahoma's, which allow companies to implement new rates immediately after filing them with regulators. Other states require regulatory approval before new rates can be applied.

While some have called on Oklahoma lawmakers to pass a "prior approval" law, arguing that it would keep consumer premium costs down, Mulready said he disagrees.

"There are only about a dozen states that have a prior approval system. California is one, (and) we've seen the results, (which) left thousands of people uninsured or in the state FAIR plan… because they ended up with all those major companies that we've been talking about saying we're going to no longer write homeowners' insurance in California … If a for-profit company does not have a path to profitability for a product, they will stop selling that product, and that's what's played out in California."

He noted that companies have maintained profitability overall because of their investment income and income generated by vehicle and other insurance lines.

In addition to weather, inflation has been a key factor in driving insurance rates higher in Oklahoma. Mulready said costs of construction materials and labor have increased significantly in recent years — and so, too, have the valuations of homes. Homes that may have required $200,000 worth of coverage a few years ago may now require $250,000 worth or more.

He said the Oklahoma Insurance Department has a program in place to help consumers save money by building or retrofitting homes to be more weather resilient. Its website also has a tool to help people calculate typical premium costs and offers tips on shopping for insurance. Mulready said strategies are being explored, including through potential legislation, to keep costs down. The department's consumer assistance division handles about 15,000 calls a year, he said, many from people worried about rate increases.

"Rates are up and no one is happy about that. No one is happy in Oklahoma," he said, "but no one is happy across the country."