Rising Homeowner Insurance Costs

If you’re thinking of becoming a homeowner, you’ve likely spent time budgeting for additional expenses – property taxes, lawn care, a big-screen TV to fill up that extra space…you get the idea. But have you factored in protection for your new home?  Why do you need homeowners insurance? 

While you’re crunching numbers, remember to include homeowners insurance. A standard policy will cover exterior and interior damage from incidents like vandalism, fire, wind and lightning. It also covers loss of use expenses, damage to structures like sheds or gazebos, and liability and medical costs if someone is injured on your property. Personal property is covered, too – good news if you really do have your eye on that big-screen TV.

Unfortunately buyers have seen rising homeowner insurance costs over the last few years thanks to a variety of causes.

Even if you can afford to buy a home these days, Americans must ask themselves if they can afford to insure it.  Nearly 30% of American homeowners are nervous about rising home insurance rates, according to insurance comparison site Insurify.

Home insurance prices jumped 19%, or on average $273 per policy, last year, according to a study by Guaranteed Rate Insurance. The insurer said prices surged 55% from an average of $1,108 in 2019 to $1,723 in 2023. And more increases may be on their way. Insurify forecasts some increases this year as high as 23% in states with severe weather.

Climate change impacts: Rising global temperatures contribute to more frequent and severe weather events such as hurricanes, wildfires, floods, and tornadoes. Insurers face higher claims costs, which they pass on to policyholders.

Regional risks: Homes in disaster-prone areas (e.g., coastal regions, wildfire zones) are particularly affected by rising premiums.

• Inflation: General inflation increases the cost of labor, materials, and supplies required for repairs and rebuilding.
• Supply chain disruptions: Shortages of building materials like lumber and concrete have further driven up costs and led to rising home insurance costs.
• Labor shortages: A lack of skilled workers in construction has also pushed up rebuilding expenses.

Market Boom: The housing market boom has led to higher property values, which in turn increase the replacement costs insurers must cover. Higher coverage amounts mean higher premiums for homeowners.

Reinsurance: Insurance companies purchase their own insurance (reinsurance) to manage risk. The cost of reinsurance has surged due to global disasters, impacting the prices insurers charge homeowners.

A spike in the frequency and magnitude of claims, from both catastrophic events and routine damages, means insurers face greater financial exposure.  Fraudulent or exaggerated claims in some areas have also added to the overall costs.

Some states have implemented stricter regulations requiring insurers to hold larger reserves, increasing their costs.  In high-risk areas, some insurers have pulled out entirely, reducing competition and leaving fewer choices for consumers.

Older homes often require more expensive maintenance and repairs. As the housing stock ages, insurers face higher risks of claims related to wear and tear.

Litigation trends: Insurers may face lawsuits over denied claims or disputes, particularly in disaster-hit regions.  In some states, legal systems incentivize excessive litigation, further driving up costs.

Advances in technology allow insurers to model risks more accurately, sometimes leading to higher premiums for properties previously underestimated in risk evaluations.  The result is rising homeowner insurance costs.

Some insurers use credit scores as a factor in determining premiums. Economic instability can result in more policyholders with lower scores, which might lead to increased pricing for perceived higher risks.

Understanding these trends can help homeowners take proactive measures, like mitigating risks or shopping for competitive rates, to better manage rising insurance costs.

Shop Around for the Best Insurance Rates

• Compare multiple providers: Get quotes from at least three different insurers to find the best deal.
• Bundle policies: Combine home and auto insurance with the same provider to qualify for discounts.
• Use an independent insurance agent: They can help you compare policies across different insurers.

2. Increase Your Deductible

• Opt for a higher deductible, which reduces your monthly premium. Ensure you have savings to cover the deductible in case of a claim.

3. Improve Home Safety and Resilience

• Upgrade home security: Install smoke detectors, burglar alarms, or a monitored security system.
• Harden your home: Invest in storm-proof windows, a stronger roof, or other weather-resistant features. These upgrades often qualify for discounts.
• Plumbing and electrical updates: Older systems may lead to higher premiums due to increased risk of fire or water damage.

4. Take Advantage of Discounts

• Loyalty discounts: Some insurers offer reduced rates for long-term customers.
• Claim-free discounts: Maintaining a clean claims history can lead to savings.
• Professional or organizational discounts: Membership in certain groups (e.g., alumni associations, military) might make you eligible for lower rates.

5. Reassess Your Coverage

• Avoid over-insuring: Ensure coverage is enough to rebuild your home but doesn’t include the land value.
• Adjust personal property coverage: Review and update to avoid insuring items you no longer own.

6. Maintain a Good Credit Score

• Many insurers use credit scores to determine premiums. Pay bills on time, reduce debt, and monitor your credit report for errors.

7. Review Policy Annually

• Reevaluate your policy and compare rates every year to ensure you’re still getting the best deal.

8. Live in a Lower-Risk Area

• If possible, choose to live in areas less prone to natural disasters, flooding, or crime. Such locations often result in lower premiums.

9. Consider State Programs or Alternatives

• Some states offer insurance programs for high-risk areas, which can be more affordable than private options.

10. Understand the Impact of Market Conditions

• Rising insurance costs may be due to increased natural disasters, inflation, or building material costs. Consider these factors when budgeting for a home.

By implementing these strategies, you can better manage rising insurance costs while maintaining adequate protection for your home.

If you are like most of us, insurance coverage is something that you put in place when you buy a home or a car and you forget about it.  Perhaps there is in fact a less expensive source of coverage.  Perhaps it would be good to talk to your insurance agent and another company to compare costs.  It might even be better if your insurance agent called you each year to talk to you about whether any changes have occurred in your life that require that you change your insurance coverage.  If you would like to check rates with another insurance company, may I suggest that you call Alex Stewart at Firefly Insurance?  Alex is an independent insurance broker who has access to multiple companies and compare their offerings to see which best meets your needs.  He may be able to save you some money or offer you better insurance coverage.  It’s worth a call to Alex or your current company to see if you can save some money.  Alex’s email is alex.stewart@fireflyagency.com and his number is 703-401-6178.  Let me know how the conversation goes!