Why do my home insurance rates keep going up?
Hi everyone and Happy November! I hope you found my first post beneficial in gaining a deeper understanding of how the replacement cost of your home is determined. (If you missed my first blog, CLICK HERE http://bakerinsurancebrokers.com/?p=256) . Now it’s time to provide some insight as to why your home insurance rates increase.
We know that home improvements, such as the addition of a porch or garage, or a remodeled kitchen, can increase your insurance coverage as you add value to your home. However, if you don’t do any home improvements and don’t file a claim, or especially if you have never filed a claim, it can be difficult to understand why your home insurance rates still go up.
The most common reason for increases, and unfortunately the most unavoidable, is storms. If a tornado comes through your town and causes damage like it did in Joplin, MO in 2011, or a catastrophes occur like the hail storms we had here in 2005 & 2008, you can count on your insurance rates taking a jump to offset the cost of all the damage. Why do things like tornadoes and hail storms make the rates go up, even if you are not directly impacted by the natural disaster or don’t file a claim? Because we all share in the cost of rebuilding even if we don’t have damage. Insurance is basically cost sharing. We pay our premiums to our insurance company, that company uses those premiums to pay for the damages that occur to their customers. So, if a large portion of your insurance company’s client base have claims, rates will have to increase to offset those claims.
According to NOAA’s National Climatic Data Center, there have been 40 storms with an average cost of $2.3 billion each over the last 10 years in the U.S. Guess who pays for that? We do, mostly through our insurance premiums. These storms are becoming more frequent and more severe, and of course more costly.
The cost of building materials continues to increase (inflation), regardless of the status of the housing market. We will probably keep seeing increases in our home rates as long as the price of materials (i.e. shingles, lumber, labor etc.) keep going up – the cost for that board or this piece of sheet rock is the same to replace regardless what type of dwelling you have.
In the past insurance companies were able to keep from increasing home insurance rates by doing a couple of things. 1) Take the profits from their auto insurance to offset the home insurance. 2) The insurance company’s investment gains were used to help offset losses in home insurance. That has all changed, auto insurance is now very competitive and the profits are not substantial enough to help our home insurance rates. Investment gains are also not what they used to be. My savings account before 2008 used to pay 6-8%, now it pays ½ %! Not going to be any profit there!
Despite all of this, please remember the ultimate goal of home insurance isn’t to prevent disasters from striking, but rather protect you against catastrophic expenses if it does happen. It’s a good idea to have your home checked every year or two to confirm it is properly insured, and don’t ever hesitate to ask your agent to explain any cost increases; let no question go unanswered when it comes to understanding your insurance coverage! The worst time to find out you don’t have enough or the right coverage is after the damage has occurred! If you would like an independent look at your insurance for proper coverages, call us, It’s free!