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Homeowners’ insurance rates must increase to keep insurers healthy, study says

Insurance companies are not sufficiently profitable and homeowners may have to pay higher rates.

Aon Benfield Analytics, a reinsurance brokerage, found that homeowners’ insurance rates will have to increase for insurers to remain financially stable.

The Homeowners ROE Outlook examines the return on equity of insurance companies’ homeowners’ insurance divisions. If ROE, a measure of profitability, is low, private investors will be discouraged from providing capital. Without investment, insurance companies will have to limit the insurance they provide to homeowners.

Aon Benfield estimates that, for a reasonable 14 percent ROE, insurance rates in some states would have to increase sharply. In Massachusetts, rates would have to increase 44.6 percent to provide sufficient profit to insurers. In Rhode Island that figure is 51.2 percent; in Florida it’s 93.5 percent.

Bryon Ehrhart, CEO of Aon Benfield, said that insurance companies are paying more to finance operations due to aftereffects of the global credit crisis.

“U.S. homeowners insurers continue to struggle” because of onerous state regulations and rate limits, Ehrhart stated, even as the cost of doing business goes up.

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Posted: October 28, 2009

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