Oklahoma’s leading insurance regulators have expressed concern over significant rises in earthquake insurance premiums, fueled by a market that has become increasingly concentrated.
State Insurance Commissioner John Doak held an Insurance Department hearing earlier this week, warning that if Oklahoma were to experience a major quake, the event would be catastrophic.
“If Oklahoma was to have a 7-point or 7.5 earthquake, you could well be looking at a catastrophic loss and we could also be looking at a concentration of carriers,” Doak said.
He stressed that as an insurance regulator, it was his duty to make sure risk for events like these is spread among multiple companies so carriers can remain solvent and pay out claims.
But this could be in danger as the market has shrunk to just a handful of personal lines carriers in the past five years, according to data compiled by the department. In fact, the group found that just four insurance companies claim 55% of the state earthquake insurance market.
The consolidation comes at a time when the total amount of earthquake premiums written in Oklahoma has nearly tripled, from $7 million in 2010 to $19 million in 2015.
With fewer insurers in the pool and large rate increases ranging from 4% to 300%, insurers are making more than ever in the earthquake market. And claims paid are low, too – out of about 1,094 claims for earthquake damage since 2010, insurers paid only 208. That’s just 19%, the Insurance Department said during the hearing.
Earthquake insurance policies typically have high deductibles of 10% to 20%, meaning insurers must only pay out in catastrophic conditions.
Now, Doak is hoping to determine whether the marketplace has become uncompetitive. If it has, he will decide whether to place increased regulation on earthquake insurance writers in the state.
Under Oklahoma’s “use and file” system, insurers do not have to receive approval from the state before raising rates.