Many insurers in California had cancelled many home insurance policies in the last one year. More home buyers were forced to buy home insurance under the FAIR plan. Established more than 50 years ago to provide insurance options for Californians, the FAIR Plan’s mission is to protect consumers. The FAIR Plan is available to California residents and businesses in urban and rural areas who cannot obtain insurance through a regular insurance company.
When we consider the entire US, the average cost of buying homeowners insurance for a house costing USD 300,000 is around USD 2000. The rate per mille works to 6.66 per mille.
When we come to Australia, Home insurance is becoming unaffordable for a growing number of Australian households. As of March 2024, 15% of Australian households were experiencing home insurance affordability stress, which is defined as having premiums that cost more than four weeks of their incomes. The average cost of home insurance in Australia is USD 3500, which is much higher than the average cost in US.
I had the opportunity to analyse the home insurance book in India and some of the ASEAN countries. The rates charged are a small fraction of the rates in US. My analysis showed that the loss ratios when only buildings were covered is in single digits. Even when we consider building plus contents, the loss ratios were less than 30%.
Any student of insurance planning an insurance project as part of the coursework can consider this topic for research and delve deep into why so much disparity? Is it
a) Nature of construction?
b) Lack of home insurance penetration? Actually, more the penetration, lesser should have been premium rates. But it is opposite.
c) Claims payment philosophy differential?
When there was Kerala floods, we had seen so many middle-class homes flooded with almost entire household items in water, mud, filth, for many days. Yet, we never heard of increase in home loss ratios. Infact, I heard of one story wherein an insured whose sofa was badly damaged was told that the insurer was not ready to pay replacement since the surveyor believed that the sofa can be repaired.
Blog by Atmaram Cheruvu
