Solving Homeowners 'Mystery'

To The Editor:

Sean Mooney discusses the "mystery" of the unprofitable line of homeowners insurance in his May 28 column ("Price Hikes Needed In Homeowners' Market," page 19), but fails to mention a big clue–effective insurance-to-value. A poorly calibrated or nonexistent ITV program will lead to red ink over time as surely as inadequate base rates will.

In contrast, tight tracking of construction costs by territory and analysis of the aggregate over/under-insurance levels of different cohorts (number of years insured) of the book allow the collection of adequate premiums from existing customers while competitively quoting new business. This will mitigate both the problem of undercharging for partial losses (associated with under-insurance) and that of moral hazard (associated with over-insurance relative to market value).

Framing the problem in terms of "price hikes needed" leads companies away from a solution which might be right under their nose! Raising base rates to cover for inaccurate ITV will, over time, lead the company into the no-man's land of unprofitable business written at uncompetitive rates.