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Understanding the Surge in Home Insurance Rates: Causes and Solutions

Today we are continuing to answer questions on the huge home insurance rate increases being seen across the US. This will shed some light on the situation with home rates and how to save money on insurance.

 

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The Importance of Home Insurance

Home insurance is a crucial part of protecting your investment and securing your peace of mind. However, the recent surge in home insurance rates across the US has left many homeowners worried and confused. This article aims to explain why these increases are happening and what steps you can take to manage your insurance costs effectively.

Why Are Home Insurance Rates Increasing?

The simple answer is that insurance companies are losing more money than they collect in premiums. In response, they must increase premiums to remain solvent. People often ask, “Why are the rates now increasing at 3, 5, and even 10 times the rate of inflation?” Well, generally, insurance experts blame two primary reasons for rate increases: inflation and claim losses from weather. Let me break this down for you.

The Inflation Issue

As homes need to be repaired or rebuilt, the cost of material and labor has exploded since 2020. Higher construction costs have a significant impact on what homeowners will see in their insurance renewal for 2023 and 2024. Between 2020 and 2022, pandemic supply-chain disruptions coupled with heavy demand boosted the price of residential construction materials by 33.9 percent, according to the Bureau of Labor Statistics. Skilled construction workers also became harder to find, forcing builders to raise wages.

Though prices in 2023 have dropped for some materials—like lumber— inflation hasn’t completely abated, and these issues are still being factored into the insurance company’s rates for the foreseeable future. As material and labor expenses go up, so do premiums.

Impact of Weather-Related Claims

This leads us to the issue behind the repairs needed on our homes: there are more insurance claims from weather-related events. Hurricanes, floods, droughts, wildfires, hailstorms, derechos, and other severe weather events have become frequent, destructive, and costly. As of November 8th, 2023, NOAA reported that the United States experienced 25 weather events in excess of $1 billion in losses. To put this into perspective, the average between 1980 and 2022 was only 8.1 events per year. In 2023, we’re seeing three times as many storms compared to the average.

The bottom line is that insurance companies expected to pay claims on 8 one-billion-dollar storms but had to pay for 25 such storms so far this year. With these numbers, we’re actually lucky we didn’t see more rate increases than we already have. In 2022, the United States sustained 15 weather events with losses exceeding $1 billion each. Additionally, the American Property and Casualty Insurance Association noted that 2019 through 2022 were the costliest three years for insurers ever, resulting in costs being passed on to all policyholders in the US.

How You Can Save Money on Your Home Insurance

Despite these challenges, there are strategies you can use to save money on your home insurance.

Maximizing Discounts

Discounts are usually given by insurance companies because they reduce the risk of a costly claim. Here are just some of the discounts we can help you with:

  • Bundling Your Insurance Coverages: Purchasing your homeowners and auto coverage from the same company can provide a discount of up to 30 percent overall. You could save more if you bundle your RV or motorcycle.
  • Claim-Free Discount: Some carriers will provide discounts if you remain claim-free for a number of years.
  • Senior Discounts: If you’re 55 or 60 and older, your insurer may offer up to 10% off your premiums.
  • Protective Devices: Installing smoke detectors, fire alarms, water sensors, interior sprinkler systems, and smart home protection devices can earn you discounts.
  • Fire Mitigation: Cutting back dry brush around your home in a fire-prone area can help you with a discount. In late 2023, we saw some insurers not offering coverage if you lack a defensible fire space around your home.
Increasing Your Deductible

Higher deductibles equal lower premiums. For instance, increasing your deductible from $500 to $1,000 can shave your premium by 25 percent. Moving to a $2,500 deductible can potentially save even more.

Improving Your Credit Score

Clean up your credit, specifically your insurance credit score. Insurance companies in most states use a Credit-Based Insurance Score (CBIS), which reflects your credit history, payment history, and other factors. Poor credit can generate premiums twice as high as those with good credit. To improve your odds, avoid taking on too much credit card debt before shopping for insurance and ensure you pay your bills on time.

Roof Upgrades

Your roof is where problems often start, from water leaks to fires caused by wind-borne embers. In August 2023, insurers began adding surcharges for 10-year-old roofs and changing claim settlements from Replacement Cost to Actual Cash Value. Updating your roof can provide a discount of 20% or more.

Managing Claim Frequency

The rate of claim frequency is becoming a major issue with insurance companies. Filing one claim every five years should be okay, but filing more could trigger a premium increase. Make sure to consult with us before placing a claim to determine the best course of action.

Trailstone Renewal Assurance Certification (TRAC)

At Trailstone Insurance Group, we review your insurance package each year with our Trailstone Renewal Assurance Certification (TRAC). We have a 24-point certification process for your renewal each year to ensure you have the best price and coverage for your needs. We review and shop your policies each renewal as needed, providing you with peace of mind and assurance that you have the best price for your insurance budget.

Conclusion

The landscape of home insurance is rapidly evolving due to rising costs and increasing claim frequency from severe weather events. By understanding these changes and taking proactive steps, you can mitigate the impact on your wallet. Whether it’s maximizing discounts, increasing your deductible, improving your credit score, upgrading your roof, or managing claim frequency, there are numerous strategies to help lower your home insurance rates. At Trailstone Insurance Group, we are committed to helping you navigate these challenging times and find the best insurance solutions for your needs.