Home insurance rates are rising, and in most states, homeowners are bracing for more increases. S&P Global Market Intelligence reported that since January 2022, insurance companies have filed 177 home insurance rate increase requests in 43 states, with Arizona leading the list with 34 rate increase filings.
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Natural disasters are often cited as a major cause of rising home insurance rates, but as economic volatility continues into 2022, their influence can’t be ignored either. bankrate explores the underlying causes behind homeowners insurance rate changes and shares some strategies to help offset rate hikes when possible.
are home insurance rates higher in 2022?
Before adjusting home insurance rates or changing underwriting guidelines, insurance companies must first seek approval from a state insurance department through a rate filing. To forecast how home insurance premiums could be affected by approved rate increases in 2022, Bankrate analyzed approved home insurance rate filing data from S&P Global Market Intelligence in conjunction with our 2022 study. about average home insurance premiums.
According to S&P data from January 1, 2022 to May 18, 2022, home insurance companies have been approved for rate increases in nearly every state, with an average rate increase of 4.48%. This means that at the current average homeowners insurance cost of $1,383 per year for $250,000 in home coverage, homeowners could soon be paying close to $1,445 per year on average, or an additional $62, for the same coverage. however, digging deeper into the data reveals that not all rate changes are major rate increases, and some locations may experience a minimal increase or, in some cases, even a decrease.
states with the largest percentage increases in home insurance rates
California currently anticipates the highest rate increase for homeowners insurance at 15.3%. however, the statewide impact may be relatively low, with fewer than 8,800 policies expected to be affected. In contrast, Washington home insurance policies expect a 12% increase to affect about 105,454 policyholders, meaning Washington homeowners could pay an average of an additional $108 a year for the same coverage. Arizona, Georgia, and New Mexico are also bracing for rate increases, with an average 10% rate increase affecting tens of thousands of policyholders.
states with the smallest percentage increases in home insurance rates
As of May 2022, maine and delaware saw an overall decrease in homeowners insurance rate percentage, meaning that these states, where homeowners insurance is already much cheaper than the national average cost, they can get even cheaper. Although not included in the table below, Wisconsin, Ohio, and Vermont have no change in rates from the previous year. Michigan, Kansas, and New York are expected to see a marginal increase in home insurance rates, with an average increase of less than 0.5%.
why are home insurance rates increasing?
When calculating home insurance rates, an insurance company’s priority is to manage risk. This means that the insurance company aims to balance the amount of claims paid and its operating costs with the incoming home insurance premiums. Homeowners insurance qualifying factors, such as the location and age of the home, as well as the owner’s past claim history, give an idea of how likely a claim will be. The more risky a home is, meaning the more likely it is that a large claim will be filed, the more expensive the home insurance policy is.
However, in recent years, home insurance claims have increased across the country. After absorbing the cost of claims for consecutive years and facing some of the factors discussed below, home insurance companies are now under pressure to re-evaluate their risk models, eligibility requirements and home insurance rates to stay afloat. Below are the largest insurance companies by market share and expected rate increases in 2022:
increase in catastrophic losses
Driven by climate change and rapidly changing weather patterns, the occurrence of natural disasters has increased in recent years. Each season, different parts of the country are affected by intense storms like winter storms and hurricanes, or catastrophic hazards like wildfires and floods.
The increase and greater severity of natural disasters has resulted in staggering reconstruction costs. The Insurance Information Institute (Triple-I) recorded 97 events that qualified as catastrophic losses in 2021, resulting in $92 billion of insured losses. this was up from 94 catastrophic events in 2020, resulting in $74 billion in insured losses. Although home insurance rates take estimated claims into account, losses of this magnitude forced many home insurance companies to take drastic action.
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*losses in millions
cost and availability of materials
Part of determining home coverage and a home’s risk profile is calculating what it might cost to rebuild after a loss. This includes the cost of building necessities such as labor costs and raw materials, so insurance companies factor this into the cost of your home insurance premium.
However, it is now even more difficult to anticipate construction costs due to inflation and shortages due to supply chain issues. Figures from the Producer Price Index, which tracks the selling price of goods made by domestic producers, show a 4.9% increase in April 2022 for construction raw materials compared to March 2022. The association national home builders (nahb) also reported that the cost of raw materials, which include lumber, steel products, concrete and plaster products, increased by 19.2% compared to last year and 35.6% since the start of the pandemic in the spring of 2020.
Although the price of raw materials continues to rise, sourcing materials can also be a challenge. According to a May 2021 survey by Nahb and Wells Fargo, nearly all respondents had trouble finding plywood, copper wiring, windows and doors, appliances, and more. Not being able to have goods and materials ready at each stage of the construction process can delay deadlines and exceed budgets, forcing home insurance companies to pay more than expected during a claim.
shortage and cost of labor
The effects of the great resignation affected all industries, including construction. According to a report published by the Associated General Contractors of America (AGC), 1.1 million employees left the construction industry from February to April 2020. The employment rate picked up slightly in May 2020, especially in residential construction. for home construction and remodeling, although growth has been stagnant. agc suggested that many workers may have chosen to move to other industries or leave the workforce.
Data from the Bureau of Labor Statistics shows that 2022 remains a challenging time for employers in the construction industry. the hiring rate for construction jobs decreased slightly from 5.4% in February 2022 to 5.2% in March 2022, while separations or departures of employees of a company continued to increase. Total separation, including voluntary and involuntary resignations, peaked in 2022 at 5.1% in March.
In order to retain current employees and attract new ones, raising wages is a strategy used by many construction companies. The AGC noted that from February 2021 to January 2022, the hourly rate for construction employees increased 5.8%, although construction companies may still need to increase wages further to remain competitive. . the struggle to retain employees and the higher cost of labor further contribute to higher overall construction costs that insurance companies must account for when setting homeowners insurance rates.
course correction by home insurance companies
Due to heavy losses in recent years, many home insurance companies have reevaluated their business decisions. Raising home insurance premiums is just one course of action; others include being more selective about the areas in which insurers must continue to renew or accept new business, ceasing to do business in a state altogether, or even liquidation altogether.
The current home insurance crisis in Florida is just one example of how dire things can get. large losses from insurance fraud and natural disasters have made it difficult for insurance companies to continue operating in the state. when insurers tighten restrictions or stop doing business in certain areas, they put pressure on other carriers to take on even more risk or implement stricter underwriting rules. This results in homeowners having difficulty not only finding affordable home insurance, but also finding a home insurance company that is willing to accept them.
Is all home insurance affected?
Although the cost of home insurance may be rising, this does not mean that all home insurance policies are more expensive. Your home insurance premium is based on individual rating factors, such as where you live, the age and square footage of your home, and the claims rate for your area.
In addition, the coverage selected and the limits of your policy play an important role in your home insurance premium. Customizing your policy with additional endorsements can provide more protection for an additional fee, but taking advantage of discounts could go a long way toward making the final premium more affordable.
Also keep in mind that you’ll know if your new policy’s premium has increased before your renewal date. Your insurance company will send you policy renewal statements, including your new home insurance premium, in advance so you have time to assess if your premium has increased, what changes you can make, and if you need to shop around.
Is it possible to avoid rising home insurance costs?
While there are steps you can take to manage your home insurance premium, you may not be able to completely avoid a rate increase. Plus, as a homeowner, you also have two main concerns when it comes to managing your home insurance costs: your policy premium and whether your home’s coverage limits are high enough to rebuild your home, especially since inflation and construction costs remain volatile.
understand your home insurance coverage
Factors that cause home insurance premiums to rise can also affect how you calculate coverage for your home. Many homeowners are surprised to find that the market value of their home has no impact on their home insurance rates; instead, what matters is the cost of rebuilding the house. Depending on the type of home insurance policy you have and whether your policy uses replacement cost for home coverage, you may also need to consider how and if depreciation may be a factor in the cost of rebuilding your home. /p>
Over time, construction and labor costs naturally fluctuate and may be higher now than when you first purchased your homeowners insurance policy. As a result, your homeowners coverage limits may no longer be high enough to completely rebuild your home. Some home insurance companies account for this by gradually increasing your home’s coverage limits at renewal, while others offer an inflation protection endorsement for a separate fee, but it’s important to check your policy.
Another approach is to include Extended Replacement Cost or Guaranteed Replacement Cost as an optional add-on. Extended Replacement Cost increases your home’s coverage limit by an additional percentage, typically 25% or 50%, while Guaranteed Replacement Cost will cover the full cost of rebuilding a home, even if you exceed coverage limits. policy, keep in mind that in order to have these replacement cost options apply, your homeowners coverage should be enough to insure your home to begin with. Plus, these endorsements will increase your home insurance premium, sometimes significantly.
review your policy and compare prices
While rising home insurance rates may seem inevitable, there are steps you can take that could result in savings:
- review your current policy. Before making any changes to your home insurance policy, it’s a good idea to review it to make sure your home is adequately insured. Also review supplemental endorsements to see if they are required to protect your home. if you have any concerns, an insurance agent can help review your policy, answer any questions and make recommendations.
- ask about discounts. Taking advantage of all available discounts is one of the fastest ways to reduce your home insurance premium. You may be able to get home insurance discounts based on your home’s features and installed safety and security features, but also organization memberships, claims history, billing preferences, and more. /li>
- Include your other policies. A multi-policy discount is often one of the largest discounts available. Along with the convenience of organizing all of your insurance in one place, combining your auto and home insurance with the same company could result in significant savings. other policies that may qualify for a multi-policy discount include general, boat, or motorcycle insurance.
- look for comparative quotes. because each home insurance company calculates rates for Differently, comparing home insurance quotes could be a useful exercise. can give you a better idea of the range you can expect to pay for home insurance and what might be a good deal for you. When researching home insurance companies, consider each company’s financial strength ratings from agencies such as AM Best and Standard & poor to get an idea of an insurance company’s ability to meet current and future financial obligations.
will home insurance prices drop again?
Home insurance rates are rarely static from year to year, even in periods of economic and market stability. however, in the near future, as inflation, labor shortages, and supply chain issues continue, homeowners may see an increase in their home insurance policies until these problems are resolved. As natural disasters increase in frequency and intensity, government agencies, homeowners, and insurance companies are bracing for higher repair costs.
Even though homeowners insurance rates are rising, your policy is still based on your personal rating factors. For this reason, your home insurance premium may actually go down. This could be because your region had fewer claims compared to previous years, your home is still relatively new and built with weather-resistant materials, or you now qualify for more discounts. Periodically checking with an insurance agent or company representative may be the best way to keep up with changes to your policy.
If you find that the cost of your homeowners insurance has increased significantly at the time of renewal, be aware that there are still steps you can take to try to lower your premium. A home insurance policy can be a valuable defense for your financial assets, which is why insurance experts and financial advisors recommend keeping one in force.
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