Before an insurance company charges a premium, it has to tell the Division of Financial Regulation (DFR) about it by submitting a rating plan, which shows to DFR how it determines the premiums it is charging. DFR reviews rating plans to make sure the premiums charged by the insurer comply with the law. The premiums must be based on the real costs paid by the insurance company in the past, and on reasonable predictions of the future costs using accepted statistical methods. For a rating plan to be accepted, the insurance company must show the premiums charged are necessary to continue paying claims. Oregon law requires all premiums not to be “excessive, inadequate or unfairly discriminatory." See
ORS 737.310. These criteria are based on historical data. That is, for each kind of insurance – auto, homeowner, etc. – the premium must be enough for that company to cover all claims but not so much that it becomes excessive, and that is all based on the claims data from the past.
If your premiums have increased, call your agent or insurance company and ask for specific reasons why. You can also ask whether your premium can be lowered, what discounts may be available, and if your policy qualifies for a rerate.
Another option is to shop around to see if you can get a better premium with another insurance company. Oregon has a robust insurance market, with about 130 companies that write homeowners insurance. A different company might be able to offer a lower premium. Working with an agent or broker may be helpful because most can shop with multiple companies at the same time. Keep a list of the companies that will and will not quote coverage, and the corresponding premium. If you work with multiple agents, this will ensure you do not get multiple quotes from the same insurance company.
If your agent or insurance company refuses to provide you with detailed reasons why your premium increased, you can contact the Oregon Division of Financial Regulation's consumer advocacy team at 888-877-4894 (toll-free) or file a complaint online at dfr.oregon.gov.
Q&A
How does an insurance company decide what premium to charge me?
Insurance premiums must always bring in enough money to pay for all of the risk that the company insures. If the insurance company insures 1,000 people in Oregon, it must have enough money to pay for all the claims filed by all of those people, whether 10, 20, 100, or 300 of them make claims in a given year. To understand your premium, start with the idea that you are one person in a group of many.
Your individual premium should be based on the amount of risk that you contribute to the group of people your insurance company covers. Not everyone that your insurance company insures is going to need to make a claim. In reality, only a small percentage will. But the insurance company bases each premium on the share of risk that a person contributes to the overall risk that the insurance company potentially will pay.
How does your insurance company know how much risk to insure?
There are a couple of broad categories that an insurance company uses to evaluate your risk. Your insurance company uses demographic information, data from the past, and statistical analysis to arrive at a number that reasonably represents how much risk you contribute to the group.
Your insurance company will try to predict how much risk your home will take to insure. Older homes are more likely to need repairs, for example. This may mean increased risk, which often means a higher premium.
Is your home surrounded by forest or other flammable vegetation? If so, your insurance company will likely view that as an increased risk that your home will be lost or damaged in a wildfire, and charge you a higher premium to pay for that risk. Is your home near the coast? If so, an insurance company might see that as an increased risk for repairs related to coastal weather, such as wind.
So far, we have focused on the likelihood that you will file a claim. But that's not the only way insurance companies look at risk. Insurers also look at how much it will cost the insurance company if you do file a claim.
Sometimes, claims costs depend on factors that are specific to you and your coverage. For example, if you get an insurance policy for a house that would cost $300,000 to rebuild, your insurer might expect not to have to pay more than that if you were to file a claim. But if you get insurance for a house that could cost more than a million dollars to rebuild, the insurance company would anticipate that it might have to pay much more than $300,000 on a claim. This additional risk results in a higher premium.
Other times, claims costs depend on factors that affect everyone. Big, global events or trends can affect everyone's claims cost, and premiums go up across the board.
Homeowners insurance premiums have been affected by global pressures. One big factor is climate change. As wildfire seasons become more intense and longer lasting, more buildings burn. For decades,
wildfire accounted for just $100 million in claims per year on average nationwide. Since 2020, we have seen
nearly $3 billion in wildfire losses in Oregon alone. Many people's premiums have gone up significantly because of wildfire risk.
Another factor that might not spring to mind when you think about your homeowners insurance premium is building materials. Lumber prices are a great example.
From 2020 to 2021, lumber prices increased five-fold nationwide. That means, each time an insurance company had to pay for wood to repair a home in 2021, it paid vastly more than it would have paid a year earlier. As lumber or other building material prices increase, so do insurance premiums, because insurance companies must always have enough money to pay claims.
In summary, an insurance company bases your premium on a forecast of what your coverage might end up costing them. It will look at the total risk it has to insure and make you pay your part.
Can my insurance company cancel my homeowners policy?
Most of the time, your insurance company can only cancel your homeowners coverage for certain reasons.
Reasons for cancellation include:
- You stop paying your premium.
- You mislead your insurance company when you applied for insurance, or if you mislead your insurance company when making a claim.
- You break the terms of your insurance contract.
- If there is a substantial increase in the risk that your home will be damaged or lost.
- Extremely rare circumstances that only come up when an insurance company is at risk of going bankrupt.
- Within the first 60 days of the policy, finding additional information that impacts the risk of your property as outlined in the insurance company guidelines.
If any of these happen, your insurance company has grounds to cancel your policy. For the cancellation to be lawful, though, your insurance company must mail you a Notice of Cancellation to the address identified in the policy. Email does not count. Neither does a phone call.
The Notice of Cancellation
must always be mailed within a specific time period to be compliant with state law. If your insurance company cancels your coverage because: 1) You didn't pay your premium, or 2) You mislead your insurance company, then it must mail the Notice of Cancellation 10 days before the cancellation takes effect.
If your insurance company cancels your coverage because: 1) You break the terms of the policy, or 2) There is a substantial increase in the risk of insuring your home, or 3) The company is at risk of going bankrupt, then it must mail the Notice of Cancellation 30 days before the cancellation takes effect.
No insurance company will cover my home. What can I do?
Sometimes, you will not be able to find coverage through the “standard" insurance market, which is the main way people get insurance. If that happens, there are two options outside of the standard market that are always available as a last resort: the Oregon FAIR Plan and the surplus lines market.
The Oregon FAIR Plan is an insurance market available when you cannot find insurance on the standard market. DFR requires most insurers who do business in Oregon to participate. Each company must write policies for consumers who cannot get coverage in the standard market. The premiums are often more expensive than in the standard market, and the coverage is less comprehensive. To qualify for the FAIR plan, you must have been declined by two standard insurance companies. You can visit the FAIR Plan's website at
https://orfairplan.com.
Surplus lines insurance companies are your other option if you cannot find coverage in the standard market. This market is separate from the standard market and is generally geared toward covering risks that are harder to insure. You can usually get more comprehensive coverage, but will also pay a higher premium.
My insurance company is requiring a defensible space assessment, can they do this?
Yes, as a condition of offering coverage, some insurance companies may require assessments to be made of defensible space, general property conditions, or both. These assessments are typical and are driven by the specific property characteristics the insurer identifies in the underwriting process. This type of underwriting is allowed under the Oregon Insurance Code. All underwriting rules must be filed with the division before they are used by an insurance company, and they vary by company.