Despite an almost 20-year decline in homeowners claims frequency, the average cost of a claim payment—also known as average claim severity—has rapidly increased, according to the Insurance Research Council’s (IRC) “Trends in Homeowners Insurance Claims, 2015 Edition.”

The report cites a 7.8% annual jump in average claim severity—more than three times the annual rate of inflation. Meanwhile, the average claim payment, rising from $229 in 1997 to $625 in 2011, increased 5% annually beginning in the late ’90s—more than twice the rate of the 2.4% annual increase of inflation.

If trends are considered transitory, what does a 17-year long trend indicate? Collecting and analyzing data from 1997-2013, the report emphases just how volatile and severe homeowners claim costs trends have become.

“If you look at costs in terms of average payment per insurance per home, it wasn’t as high as average paid claim severity because the frequency was coming down at the same time,” says David Corum, vice president of the Insurance Research Council (IRC). “Those things average out. But costs have been increasing, whether you’re looking at it in terms of claim severity or claim payments per insured home, much more rapidly than inflation.”

The report found volatility more prevalent in claim frequency trends than claim severity trends—a characteristic based on catastrophe risk and events. “Around 2005, the percentage of total claim payments that were attributable to catastrophes increased pretty dramatically,” Corum explains. “Over this 17-year period, the second half averaged about 35% of total claim losses attributable to catastrophes while the first half averaged about 25%. So there has been some increase in the total claim dollar that’s related to catastrophe events.”

The proportion of cat-attributed payments jumped from 17% in 1997 to 49% in 2005. And looking at average cost of claims only makes the instability clearer: Based on modeled trends, cat claim severity produced a volatility index of 20% compared to 2% for non-cat claim severity.

“There are a number of states in the south central U.S.—Oklahoma, Colorado, Kansas—that in the last five years have seen a very noticeable spike in claim costs as a result of the increase in frequency of claims,” Corum says. “When you talk about volatility from year to year and across states, it’s usually due to the frequency of claims. On the severity side, the increase is two or three times the rate of inflation—that seems to be happening everywhere and is a result of systemic cost factors affecting all kinds of claims.”

The IRC attributes the increase in homeowners insurance claim costs to a number of factors. For one, the average square footage of newly constructed homes increased 21% between 1997 and 2013—and it’s 56% greater than in 1973. The cost of building materials for these larger, more complex homes isn’t helping either—the majority of materials are oil-based, such as roof shingles, vinyl siding and asphalt. According to the report, the producer price index for oil-based roofing and siding materials increased at a 7.1% annualized rate over the 17-year study period.

What’s to blame? “In the latter part of the last decade, the oil refining industry adopted some new technology with an intent to get more usable fuel out of raw crude oil,” Corum says. “Oil refineries installed devices called ‘cokers,’ that basically left less waste—or flux—in the oil refining process. They were trying to improve the efficiency of the refineries, but as a byproduct there was less of this flux left over.”

But we need as much flux as we can get. It’s the raw material used to produce asphalt, shingles and other oil-based building materials. “As a result, the price skyrocketed for those products,” Corum says—and that majorly impacts cost factors in repairing damaged homes and buildings from storms and other disasters.

The report also cites the growing frequency and severity of storms as a contributing factor to the claim cost upsurge. But this is uncontrollable. “The industry and society in general can’t change the severity of storms and can’t affect very much the frequency of claims,” Corum says. “What we can and will do is more research to try to understand what’s driving claim severity because those might be things that can be affected and help reduce costs.”

“There are a lot of things that can be done to try to bring that severity trend under control,” Corum adds. “And those are things that we’re not helpless to affect such as factors for reducing the damage, ways of minimizing the damage when there is a storm and reducing the cost of repair.”

Morgan Smith is IA assistant editor.