INSURANCE: Insurers Shifting Catastrophe Costs to Consumers

Consumers in 11 states hardest hit by weather catastrophes in 2011 should brace themselves for homeowners insurance rate increases amounting to nearly $100 on every $500 in coverage.

Not that the hikes are necessary. 

In a recent study, the Consumer Federation of America (CFA) says insurers are more and more often shifting the cost of weather catastrophes onto homeowners as they "significantly and methodically" decrease their financial responsibility for weather catastrophes like hurricanes, tornados and floods. 

The scathing study says "the insurance industry has moved from its historic role as a calculated risk-taker to one of a risk-avoider, exposing consumers and taxpayers to much higher costs."

The report comes on the heels of insurance rating and information source A.M. Best reporting recent rate increase request filings of up to 20 percent or more from insurance companies in 11 states, including Alabama, Arizona, Colorado, Georgia, Kansas, Kentucky, Maine, South Carolina, South Dakota, Tennessee and Virginia.

The rate increase requests follow a record year for major disasters. The Federal Emergency Management Agency (FEMA) reports the nation suffered 99 major disaster declarations in 2011, more than any other year since FEMA began recording the statistic back in 1953.

Hurricane Irene slammed the Eastern Seaboard along with Tropical Storms Irene and Lee. Swarms of tornados also twisted through the Southeast and Midwest last year, taking lives and destroying communities.

"Insurance commissioners should block many of these pending rate increases because they place an unwarranted financial burden on homeowners, many of whom are coping with severe financial difficulties in a bad economy," said J. Robert Hunter, CFA's Director of Insurance and a former federal insurance administrator and state insurance commissioner.

"In the last 20 years, insurers have been so successful at shifting costs to consumers and taxpayers that they are currently overcapitalized and cannot justify higher homeowners' rates,"

Nearly a quarter of working households in Massachusetts and across the United States spend more than half their income on housing, according to a study released yesterday by the Washington, D.C.-based Center for Housing Policy.

More than 231,000 Massachusetts households, or 24 percent of working families, suffered from a “severe housing cost burden’’ of spending more than 50 percent of their income on housing in 2010, up from 22 percent in 2009, according to the center, which based its analysis on recent census data.

Nationwide, the percentage of working households that spent more than half their income on housing grew to 23.6 percent in 2010, up from 22.8 percent in 2009, the study said.

The report emphasizes what many working people know firsthand: They are increasingly struggling to keep a roof over their heads and cover other expenses. The task is even harder for many tenants, who have seen rents rise despite the sluggish economy and high unemployment rate, the report said.

‘Homeowners have been hit hard by the housing crisis in more ways than just lost equity.’

Jeffrey Lubell Center for Housing Policy

“In Greater Boston we are seeing huge challenges in rents rising at the same time that incomes are stagnating,’’ said Sean Caron, director of public policy at the Boston-based affordable housing nonprofit, Citizens’ Housing and Planning Association. “Working people are struggling.’’

Housing specialists generally agree that people should not spend more than 30 percent of their household income on housing, Caron said. “The fact that one in four is spending more than 50 percent is troubling,’’ he said.

Indeed, homeowners in general are doing better than tenants. The report found that nearly 22 percent of working homeowners were paying more than 50 percent of their income toward housing while almost 26 percent of renters were doing so. The report defines working households as those who work at least 20 hours a week and earn no more than 120 percent of the area median income.

Even many homeowners have seen a decline in affordability because of a drop in incomes, said Jeffrey Lubell, executive director of the housing center. Incomes for working homeowners fell more steeply than incomes for working tenants, dropping about 5 percent between 2008 and 2010, the report said. Also many homeowners purchased their properties at higher prices and do not benefit from a drop in values.

“Homeowners have been hit hard by the housing crisis in more ways than just lost equity,’’ said Lubell. “Many working homeowners have been laid off or had their hours cut.’’

If there is good news to be found in the report it is that despite the relatively high cost of housing

JUST FOR FUN: Does Money Make You Heartless?

RETIREMENT: Getting ready to retire? Start by rightsizing your home

If your long-term plan is to keep working, investing and living where you are until the day you retire, and then change your lifestyle and financial life, you are practicing what I call "cliff living" — living one way until you abruptly leave the world of work, then leaping to a whole new level of life and finances.

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  Thinkstock

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Instead of waiting for this dramatic turn of events (which, incidentally, many people can no longer pinpoint in their future), I recommend living a "blended life," one that incorporates some major changes as early as possible that can continue seamlessly into your retirement years.

In other words, rightsizing your finances, work and lifestyle so that you ease the transition, and at the same time help to ensure that your income and assets (inflow), as well as your costs and liabilities (outflow), are well-suited to retirement or semi-retirement.

Small is beautiful

Current home sales are following this rightsizing trend; according the Census Bureau, the median floor area of new homes fell to 2,094 square feet in the third quarter of 2009 from 2,309 square feet at the start of 2007. The National Association of Builders agrees that the median size of new homes is shrinking, pointing out that rooms are getting smaller, and some of the luxury amenities that were popular last decade are disappearing—including opulent bathrooms and kitchens.

What about the market?

My clients — along with a lot of other homeowners out there — are leery of selling their property in today's unfriendly real estate market. However, I argue that this could be a good time to make a change.

The question you should be asking yourself is not "Is my house worth less than it was before?" but rather "Is my house worth less than it will be in the future?" If you're staying put because you hope that the answer will be yes — particularly in the next few years — it's important to understand that there is no guarantee that the market is going to recover at any kind of reasonable pace. And when the market does change, it won't have "the perfect storm" of easy money, dropping interest rates, and strong economic conditions to accelerate as it did in the past.

So if you are in a position where you would not buy your home today because of your situation (whether family size, finances, or location), you should take action toward rightsizing.

Sharing your home

Another option for rightsizing housing costs is to cohabitate, either in your current home or in a shared dwelling. This is becoming more common, as grown children move back in with their

RENTAL MARKET: Renters face fewer vacancies, rising rates

NASHVILLE – During the boom years of home buying, property manager Charlie Biter used to offer new apartment tenants one or two months' free rent as a lease enticement. Now, as rental demand continues to surge, no such offers are necessary.

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  By Samuel Simpkins, The Tennessean
  Would-be renter Doug Richesin checks out an apartment complex in Nashville.

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By Samuel Simpkins, The Tennessean

Would-be renter Doug Richesin checks out an apartment complex in Nashville.

"Back then, everybody was being creative to bring renters in," said Biter, who oversees 2,000 apartment units in the Nashville area for Continental Property Management. "But now I'm not aware of any units offering concessions."

Across the country, as more people compete for apartments in the wake of the housing collapse, the market has swung in favor of landlords. For tenants, that means saying goodbye to move-in incentives and watching rents edge higher.

About a quarter of all apartments nationwide offered some type of concession in last year's fourth quarter. By comparison, 53% of apartments offered concessions in the first quarter of 2010, according to data tracker MPF Research's latest report.

"The industry moves in cycles, and right now not a lot of apartments are available," said Jay Parsons, an analyst at MPF Research. Until apartment construction catches up to demand, landlords will maintain their control of the market, he said.

The vacancy rate in Pittsburgh, at 2.2%, is among the lowest in the country, according to MPF's fourth-quarter data from 2011. University of Pittsburgh master's student Harrison Murphy knows the difficulty first-hand. Four years ago, he found an apartment within an hour of searching, he said. Now, not only are rentals harder to come by, but many landlords are requiring stricter background checks.

"I have been unable to find a single place that doesn't require a recommendation from your previous landlord, with some even asking for recommendations from teachers," Murphy, 24, said.

In New York, too, as rental demand swells in some of the most desirable neighborhoods, rates are reaching new highs. In 2011, average rents across all