Alfa Mutual Group has raised homeowners insurance rates by 20 percent statewide, with even steeper increases for landlord and farmowner policies.
The move does not include any increases meant to make up for losses from April tornadoes, said Charles Angell, who as the state’s actuary evaluates insurer requests to change rates.
Angell told the Press-Register that insurers will only be allowed to include a fraction of their 2011 tornado losses in upcoming rate requests, a move that could hold down future price increases.
Instead of a reaction to April’s catastrophe, Alfa’s move is part of a several-years trend by large insurers to raise rates across the state — a recognition that in most places other than the coast, they were charging too little to cover losses in the long run.
Insurers had been less shy about raising rates in Mobile and Baldwin counties, where policyholders typically pay from twice to four times the state average for homeowners policies.
"Over the past decade, maybe longer than that, we have seen an unprecedented increase in storm damage and homeowners claims," said Jeff Helms, spokesman for the affiliate of the politically influential Alabama Farmers Federation. "We are seeing an increased frequency in storms and severity of storms, and that is putting pressure on rates."
Angell said that actuarial calculations supported Alfa’s changes, which went into effect Thursday.
"Everything that they had done was justified and did support the increase we approved," he said.
Alfa Mutual Insurance, the Montgomery-based group’s main homeowners insurance unit, raised rates by a statewide average of 4.8 percent in 2006, 5.8 percent in 2009 and 18 percent in 2010, according to state records. Alfa controls 18.3 percent of the homeowners market statewide, the second-largest share behind State Farm Insurance Cos.
From 2007 through 2010, State Farm raised rates by an average of 30 percent statewide, while No. 3 Allstate Corp.’s largest unit has gone up 44 percent during the same period. The largest unit of No. 4 Farmers Group Inc. has raised rates 85 percent since 2007, with its most recent increase earlier this year.
Insurance Commissioner Jim Ridling told the Press-Register in 2009 that many insurers had been taking a smaller rate increase than their actuarial filing called for away from the coast to compete for business. Angell said that after Ridling made those remarks, that pattern changed, meaning rates have become less of a bargain upstate.
Alfa said Thursday that it would raise rates on landlord coverage by 48.6 percent and on farmowner policies by 26.7 percent.
Helms said policyholders shouldn’t necessarily expect another big rate request next year, despite the fact that Alfa expects to pay out $425 million on as many as 25,000 tornado claims.
"I do not think it means that at all," he said. "The rate increase is based on future expected losses. It’s not based on an event."
Alfa won’t say how much reinsurance it collected and how much it has paid from its own reserves. After the April storms, Alfa said it would drop more than 73,000 policies, with more than half of them landlord policies.
Even if Alfa did seek a steep increase, state regulators have signaled they will limit insurers’ ability to reclaim tornado losses.
Angell said that a modeling analysis done for the state found that the tornadoes, which left as much as $2 billion worth of insured damages, were something like a 1-in-250-year event.
Many carriers use a 20-year average of tornado losses in calculating requested rates. Because April’s losses are outside what would be expected in a 20-year span, Angell said that Ridling will allow insurers to include only a tenth of their tornado losses in figuring future rates.
When averaged over 20 years, that means the losses could only move the overall tornado loss calculation by 0.5 percent.
