“Insurance companies have begun to report sharp improvement in results of their homeowners-insurance units, the result of a two-year campaign to turn a longtime, loss-leading business line into a profitable one,” writes Christopher Oster in today’s Wall Street Journal.

“Insurers now are starting to enjoy the fruits of rate increases, higher deductibles and efforts to discourage homeowners from filing certain claims that went unquestioned in the past. Allstate Corp., of Northbrook, Ill., the nation’s second-biggest home and auto insurer, reported last week that its homeowners line had returned to ‘acceptable profitability.’ Such profit, analysts and the companies say, could significantly slow rate increases in the near future.”

“Profits on the homeowners line are a rarity; collectively, U.S. insurers have lost money on the line every year for more than a decade. The companies stomached the losses, hoping to attract customers for their larger auto-insurance business. But after suffering big losses on the homeowners line in 2000 and 2001 — and at the same time seeing their investment-portfolio gains dwindle — insurers began pushing through big rate increases. In Texas, for instance, the average rate increase in 2001 was 57%. In the first quarter of last year alone, Allstate raised rates in 23 states by an average 19.8%.”

“For every dollar Allstate collected in premiums in the first quarter, it paid about 80 cents in claims and related expenses. The comparable number a year earlier was a money-losing $1.08. ‘This could be a breakout year for the homeowners line,’ Alice Schroeder, a property-casualty-insurance analyst at Morgan Stanley, wrote in a new report.”

“Travelers Property Casualty Corp., Hartford, Conn., another large writer of homeowners coverage, also reported improved results in its auto and homeowners business last week, although the company doesn’t break out profit for the individual lines.”

“Consumer advocates contend the insurers were too quick, and too harsh, in assessing rate increases and limiting policy terms. In an attempt to stem losses from water damage and mold, for instance, many insurers added exclusions for mold, and several states reported policyholders whose coverage wasn’t renewed after they filed a single water-damage claim.”

“While regulators have allowed such moves to help insurers stem losses, a return to profitability might prompt closer scrutiny of new rate-increase requests, said Robert Hunter, director of insurance for the Consumer Federation of America. Mr. Hunter said competition might even push rates lower as companies again begin seeking new customers.”