Talking about “average” costs of insurance makes things simple, not necessarily helpful
The National Association of Insurance Commissioners (NAIC) issued its latest national report on property insurance costs this week, and you’ll likely be seeing news stories about how Florida homeowners pay more than double the national average for homeowners insurance.
This is not news. We Floridians already know the cost of homeowners insurance is higher here than in states like Idaho. And, we’re also well aware that we are the #1 state for natural disasters. Still — and maybe always. If you’re terrified of natural disasters, three of the cities with the lowest risk are in Ohio. (And, many of those Ohioans are wintering in Florida right now!)
A little perspective on this NAIC report:
- First, this newly-released analysis is of data from 2012. There is a considerable lag time between when the data gets collected from all 50 states and how long it takes to wade through it, obviously. It’s questionable how valuable two-year-old data is to planning for the future.
- Property insurance rates have started to decline, as we have been hurricane-free for nine years. Additionally, there are now more choices for those shopping for coverage as insurance companies are taking on new business.
- Talking about “average cost” has its limitations. Here’s what the NAIC has to say about it: Average premium is an imperfect measure of the relative “price” of insurance due to wide variations in hazards, economic conditions and real estate values from state to state. Even when comparing identical policy forms and amounts of insurance, premiums for homeowners coverage can differ dramatically across the country.
If you are interested in understanding how communicating the averages is less than helpful, check out pages 21 and 22 in the NAIC report. Knowing the variables affecting the cost (including the volume of property insurance losses) has value because the average only tells a partial story. Variables include the type of building structure, population density, regulation and economic factors, such as inflation and interest rates.
It’s easy to make this all about costs; the real point is about the level of risk. Florida owns the top slot, no averaging necessary.