Officials: Fire Losses Main Reason For Expensive Insurance

The Register-Herald, August 18, 2004

One topic to be addressed by legislators during interim meetings this weekend in Beckley is homeowners' insurance. West Virginia homeowners have seen dramatic increases in premiums and some companies have completely stopped writing new homeowners' policies in the state because they say it's not profitable.

" West Virginia is out of step with the rest of the nation when it comes to homeowners' insurance," said Jeffrey W. Williams, regional counsel for Allstate Insurance.

"The state's Value Policy Law, third-party bad faith lawsuits and restrictive non-renewal rules are just some of the things that make West Virginia very unprofitable to do business."

Williams, on behalf of Allstate, presented statistics during June and July interim meetings to a special legislative committee looking into West Virginia 's high cost of homeowners' insurance.

"We provided information to this committee that shows that West Virginia 's average payout on a fire claim far exceeds the average payout in every other neighboring state," Williams said. "Actually, the state far exceeds the national average for all type of homeowners' claims. No matter what type of homeowner loss, West Virginia is obviously out of step with other states."

------

Williams said the huge disparity in the cost of homeowners' claims between West Virginia and other states is caused primarily by fire losses, which are exacerbated by the claim settlement practices required by the state's Valued Policy Law.

This law requires insurance companies to pay full policy limits when there is a total fire loss.

"A West Virginia homeowner can actually collect more than it costs to rebuild," Williams said. "In most states, the insurance company has the option to pay the actual cash value to rebuild, instead of the full policy value."

Williams said he believes the law is an incentive to some homeowners to burn a home and make a profit.

"Most homeowners are honest and law-abiding citizens, but some are taking advantage of some of these rules and laws to make a profit from a fire loss," he said. "With West Virginia 's fire severity and frequency so grossly out of pattern with other states, the only apparent explanation is the state's Valued Policy Law."

Williams said if the law were changed to force homeowners to rebuild within 12 months or take the actual cash value to rebuild, it would stop much of the fire loss fraud he believes is occurring in the state.

"New business typically generates more losses and has a higher frequency than older business," he explained. "One would also have expected Allstate's fire-only frequency to have shown improvement, but it did not. This indicates that some outside factor is affecting fire frequency and we believe that factor is the Valued Policy Law."

------

Williams agreed that West Virginia 's new insurance fraud unit is a good start.

"We are glad to see that West Virginia has finally added a fraud unit, but it is not enough," Williams said. "There are still changes that need to be made in the state."

Williams said West Virginia 's insurance market continues to suffer far more than in other states.

"Homeowners' fire claims are not out of control in other states like they are in West Virginia ," Williams said. "Insurance companies are not experiencing severe profitability problems in other states. West Virginia 's restrictive laws have created a restrictive market, which, in turn, makes insurers reluctant to grow their business in West Virginia ."

Williams said he agrees with lawmakers that West Virginia needs a more competitive marketplace.

"With the state's restrictive laws, it makes it difficult for West Virginia consumers to shop for competitive insurance quotes because many insurance companies do not want to do business here," he said. "The first step toward establishing a competitive insurance market is to eliminate or modify the unique and extremely burdensome statutory restrictions of West Virginia law, starting with the 'Lock-In' Nonrenewal statute and the Valued Policy Law."

Williams said insurance companies should not be forced to renew policies of those considered a high risk.

------


Williams did admit most major insurance companies showed overall profits nationwide last year.

"It has been very unprofitable for 10 to 12 years now for insurance companies in West Virginia ," he said. "Insurance companies make be making profits nationwide, but not in West Virginia ."

Williams said Allstate would again be making recommendations to the special legislative committee during interim meetings, which begin Sunday at Glade Springs Resort.