New insurance policy & age of your house

[Deleted]

As everyone knows, Alabama suffered significant tornado damage last month.

A headline in the paper the other day announced that Alfa, the second largest insurer in the state, will no longer write new policies for houses older than ten years. State Farm, which is the largest insurer, isn't planning such a change.

Anyone really get the reasoning behind this? The article mentioned that earlier codes made these houses more vulnerable, but I think builiding standards have declined rather than improved.

Just curious. Our thirty-year-old house is insured by Alfa, but it doesn't affect us at the moment. I just have this vision of all these older homes being pushed into a high risk pool with high premiums to match.

[8 Bit WWBG]

...:::"but I think builiding standards have declined rather than improved.":::...

This is the part that hits home for me. My house was built in the early 90s, before some things like flashing were mandatory. Its going to cost me to go put those types of protections in when they really should have been mandatory all along.

I'd be mad if I had to pay extra for insurance because the company had had to pay out too many legitimate claims and were going to stick it to the consumer.

[Deleted]

If existing players shut people out or raise prices, it will invite other players into the market. Short term it will cost more and a few years down the road it will be back to normal levels.

[azphx1972]

I agree with mmc. Alfa is really limiting its customer base if they only offer insurance to newer homes. Someone else will take over the part of the market that they abandon and charge accordingly to stay profitable. I think Alfa is making a dumb move but whatever.

[Deleted]

State Farm did this after the Oakland fires in 1990s (?). They took a big hit because of the way those policies were written; many folks were way under insured but they had guaranteed replacement cost provisions. I think some of those homes were under insured by hundreds of thousands of dollars. It doesn't seem to be a problem any more.

BTW I believe the Uniform Building Code has IMPROVED not declined. How some builders build barely to code is a whole 'nother matter...

[jkapp]

New or old doesn't really matter IMO, a tornado (or any other natural disaster) does not discriminate...and the power of the tornados that hit Alabama would have destroyed a brand new house just as it would a 100 year old house. So unless they are making this decision on other factors, I'm not sure why Alfa is limiting its business in such a way?

[jkapp]

May 21, 2011 12:30:59 GMT -5 @bonnap said:

State Farm did this after the Oakland fires in 1990s (?). They took a big hit because of the way those policies were written; many folks were way under insured but they had guaranteed replacement cost provisions. I think some of those homes were under insured by hundreds of thousands of dollars. It doesn't seem to be a problem any more.

BTW I believe the Uniform Building Code has IMPROVED not declined. How some builders build barely to code is a whole 'nother matter...

I think building materials and processes have gone WAY down (a lot more cheap materials to choose from). But I think even though the codes have strengthened (although probably still way below par) I don't think they are enforced very well.

For instance, when I bought my first home in 2003, the house was about 9 years old and the dryer power outlet was actually a range outlet - why someone thought the owner would want to cook in the middle of the hallway is beyond me - and the previous owner actually had a range plug attached to their dryer and was using the range outlet for the dryer!! But apparently it must have passed code??

[8 Bit WWBG]

...:::"Someone else will take over the part of the market that they abandon and charge accordingly to stay profitable.":::...

I wonder about that. It is important to question how profitable a segment of the market can be given the prices the market will bear. I won't say its impossible, but aren't there some markets that are just plain cost-prohibitive?

Plus, insurance in a high risk area isn't really a luxury good, or even a choice. I have to wonder if it would be cheaper to buy land and build some indestructible citadel of steel and concrete, rather than buy a 15 year old house that is just lucky it hasn't been in the storm/flood path yet.

[Deleted]

My area was hit hard by the storms last month also. I've been wondering if it would affect insurance rates around here but so far I have heard anyone talking about it.

[greenstone]

May 21, 2011 10:45:11 GMT -5 @mmc said:

If existing players shut people out or raise prices, it will invite other players into the market. Short term it will cost more and a few years down the road it will be back to normal levels.

Huh?? Have you looked at the effects the 2004 and later hurricanes on homeowners insurance on the Gulf Coast. Companies stopped writing new policies altogether in coastal counties and have been steadily dumping their existing customers. Rates have been skyrocketing with no end in sight. There are no new companies coming in to get a piece of the action.

[tskeeter]

Anyone really get the reasoning behind this? The article mentioned that earlier codes made these houses more vulnerable, but I think builiding standards have declined rather than improved.

Building standards have improved over the years, reducing the amount of damage homes are likely to sustain during a natural disaster. The improvements in construction quality aren't things you can see, such as how well the joints in the trim fit, or how well the taper finished the joints in the drywall. The quality improvements are things like shear panels built into the walls. Shear panels prevent high winds from blowing a house down. These days, the framing of the house is tied together from the roof down to the foundation, not just nailed together. "Hurricane straps" and other framing fasteners keep homes from being blown off of foundations (in new homes, the home is bolted to the foundation), keep roofs from being lifted off of houses, etc. Many building codes required that water heaters be anchored to the house framing. Why? Because if a water heater falls over during a tornado or earthquake, it will probably break off the gas line to the water heater, filling the home with gas. Sometimes, this event is followed by a very big boom and a fire. Not the kind of thing you want to have happen when emergency service personnel are trying to cope with debris clogged streets, etc.

Fundamentally, the insurance company doesn't really care much how nicely the finish work was done on your home, or if your home was built with the highest quality materials available. They are interested, though, in whether the repairs to your home after a storm will be new shingles and some broken windows, or whether they will have to replace a home that is so damaged that it is not cost effective to repair it.

[moneymaven]

I am in commercial insurance, and we have clients in that area who were totally wiped out. Insurers do this when their book of business is affected in particular ways. So, if they reflect high losses on older model homes, the loss ratio proves they should limit writing that type of business.

This happens every day in underwriting. Sometimes they are blatant about it, and sometimes it's very discreet. For example, if they have terrible loss ratios on frame buildings, they may avoid them through their underwriting criteria and seek out masonry structures instead. You may never know this is what they're doing, but they do it all the time.

As for insurance in general, the market is soft right now, meaning premiums are lower than in previous years. The insurance company has to limit its loss as well.