Insurance companies continue to kick policyholders to the curb or increase their home insurance premiums if they file too many claims in a short period of time.

Mike McCartin, a Maryland-based independent insurance agent, was so worried about this trend that he sent his clients a letter explaining what’s been happening and how homeowners can either hold onto their policies or prevent rapid rate increases.

“I am sure that you have either read or seen a story on the nightly news concerning homeowners insurance,” McCartin wrote. “Premiums are on the rise and there has been a big increase in the number of people being nonrenewed for claims frequency.”

The average cost for home insurance nationwide for 2004 is projected to be $615, an increase of $46 for the average homeowner over this year, according to the Insurance Information Institute.

Reasons behind hike

McCartin listed the reasons why premiums are going up:

• An increase in unusual types of weather claims — tornadoes, hail.

“People have come to view their homeowners insurance as a type of maintenance policy as opposed to a catastrophe policy,” McCartin said. Too many homeowners don’t do needed repairs on their homes, so if there is a major storm, the neglect exacerbates the problem.

• Insurance companies have seen profits decline because the stock market is down. Insurance companies invest the premiums they collect, hoping to make more than enough from those investments to offset any claims they have to pay.
• Insurance companies are dealing with major mold-related claims.

All of these factors and more have led to nonrenewal of policies and premium increases.

In fact, a survey by the Independent Insurance Agents & Brokers of America found that nearly 2.5 million households have lost their homeowner’s coverage or saw a premium increase in the past two years.

Agent’s recommendations

I think the tips McCartin passed on to his clients also can help you.

Here’s what he recommended:

• Maintain your home. Clean the gutters. Replace your water heater before it breaks (life expectancy is less than 10 years). The roof on a new home has a life expectancy of less than 20 years. At least twice a year, walk through your home and inspect it for developing problems, suggests the IIABA.
• Increase your deductible. Going from $500 to $1,000 could save an additional 10 percent to 15 percent on your policy.
• Pay small claims out of pocket. File more than two to four claims in a three-year period and you’re likely to have your policy canceled.
• Before buying a home, check its claims history. Most insurance companies use a claims tracking database called Comprehensive Loss Underwriting Exchange, or CLUE. The database includes claims made by a policyholder for personal losses and losses that have occurred to the property.