Capitol Week in Review
Arkansans who own a home or a business are becoming more aware that the cost of insurance coverage is going up significantly.
Legislators are looking for ways to bring the cost down again.
At a recent meeting of the Joint Senate and House Committees on Insurance and Commerce, industry representatives outlined the various factors causing the increase in rates. Legislators appeared less interested in casting blame and more interested in finding solutions.
Severe weather events are a factor. For example, a strong tornado last March devastated the city of Wynne and parts of Cross County, killing four people and destroying Wynne High school before moving into Tennessee.
Insurance companies have paid more than $489 million in claims caused just by the storm that hit Wynne on March 31, 2023, the state Insurance Commissioner told lawmakers. An insurance company based in Arkansas and two companies from other states went into receivership, in large part because of the financial impact of that storm, he said.
Two other companies have stopped selling property insurance in Arkansas because “weather patterns are presenting more risk than they are willing to insure,” he told the committee. Insurance companies protect themselves by purchasing reinsurance, but the cost of re-insurance is increasing because of storm-related risks.
An industry representative agreed that tornadoes and damaging winds are a factor. However, “what keeps us up at night are the hail storms,” he said.
Other speakers echoed those concerns. “Hail is an issue in Arkansas - big, large, destructive hail,” an Insurance Department official said.
Homes and motor vehicles are more expensive than ever, so inflation and greater construction costs are as important as severe weather in driving up insurance premiums, industry spokesmen told the committee. For the past two years insurance companies in Arkansas paid more in claims than they collected in premiums, the commissioner said.
Lawmakers and regulators cannot control the weather but they can approve policy changes that will soften the impact of higher prices. For example, the Insurance Department now allows companies to offer policies that have a separate deductible for wind and hail damage.
Last year the legislature approved Act 471 to protect consumers whose deductibles are based on a percentage of their property’s insured value. It requires insurance companies to notify customers of the monetary amount of the deductible.
An Arkansas banker told the committee that homeowners are getting surprised that a new roof costs them $10,000 to $12,000 out of pocket, even with insurance. They often need a loan because they don’t have that amount, he said.
Other states offer consumers tax credits and grants to help pay for improvements that make houses stronger and safer. Examples are sturdy shingles that can withstand hail, and braces that hold rafters more tightly to prevent wind from lifting the roof.
Stricter building codes can require new homes to include those improvements, but they can also be encouraged by the open market.
Legislators were told about a program in Alabama, where the insurance industry provides grants to homeowners who install features making their houses stronger. Oklahoma and Kentucky are implementing similar programs.
Over the long term, the grants hold down rates because insurance companies don’t have to pay as many claims for damage to those homes.