Study Finds Substantial Increase in Homeowners Insurance Claim Costs Due to the Insurance Fair Conduct Act

The Insurance Research Council (IRC), an independent research organization supported by property and casualty insurance companies and associations, released its interim findings earlier this month on the impact of Washington’s Insurance Fair Conduct Act (IFCA) on insurance claim costs.

Focusing on homeowners insurance, the IRC compared Washington claim cost data with data from three states lacking a statutory private cause of action for first-party bad faith (Arizona, Minnesota, and Utah). While stressing the preliminary nature of its findings, the IRC estimated that IFCA resulted in a 12.8 percent increase in average claim cost per insured home—or about $58 million in additional losses—in the first three quarters of 2008 as compared with 2007. Catastrophic losses such as those resulting from the January 2008 winter storm were excluded from the analysis.

Although the main focus of the IRC’s report is homeowners insurance, the IRC believes IFCA has also affected private passenger auto insurance claim severity. The IRC observed that 33 percent of the claim notices filed by individual (non-commercial) claimants involved uninsured or underinsured motorist (UM or UIM) claims, 21 percent involved personal injury protection (PIP) claims, and 2 percent involved both UM/UIM and PIP. Approximately 81 percent of all claim notices were filed by individual (non-commercial) claimants.

Click here to read the IRC report.