Homeowners costs reflect the evolution of coverage enhancements. Over time, through the use of insurers' loss and premium experience in ratemaking, homeowners rates recognize these costs to the extent permitted by marketplace forces. But it may take many years for the ratemaking data, and eventually rates, to reflect fully the costs of a single enhancement. But even before 1989, the homeowners line of insurance exhibited high loss ratios, high expenses, and low investment return, making it a difficult line for insurers to write profitably. Homeowners experience began to deteriorate in 1989, the year of Hurricane Hugo.
Insurers generally pay homeowners claims very quickly.
Without the long claim-settlement pattern characteristic of liability lines, homeowners cannot generate the same level of investment income per premium dollar. With low investment gains, insurers have to achieve higher levels of underwriting profit for homeowners than they do for longer-tailed liability lines to hit a target rate of return on surplus. Homeowners expense ratios are high compared with personal auto and nonproperty commercial lines, partly because the average premium for homeowners policies is lower than for most other lines. Because many of the processing costs are the same regardless of the amount of premium, homeowners policies generate higher costs per dollar of premium. Results by Market Segment Expense ratios vary by company.