Homeowners Insurance Cost Rising Faster Than Inflation

Homeowners across the country have seen their homeowners insurance premium rise by an average of 4 percent which translates into an average annual premium of $1,398 according to the Insurance Information Institute (III). Much of the increase can be attributed to the rising cost of materials as well as supply chain issues and climate change. 

The data shows that since 2017, homeowner insurance premiums have gone up 11.4 percent, so they are rising faster than inflation and most experts expect rates to continue rising. 

Unless you own your home, your mortgage lender will require that you carry homeowners coverage, a recent report by Bankrate.com found that the average homeowner spends roughly 1.9 percent of their household income on homeowners insurance. 

Why are premiums rising?

The cost of insurance is rising due to a variety of factors. Climate change is driving more severe storms so if you live in an area that is prone to severe storms, you can expect your insurance costs to be on the rise. 

In addition to severe weather, inflation, combined with supply chain issues have pushed up the cost of building materials dramatically. This impacts the cost to rebuild your home should it be destroyed by a covered peril. Since an insurance company is on the hook to replace your home (up to your coverage limits) if it is destroyed your premium must reflect that cost, as rebuilding costs rise, so will premiums. 

As the pandemic took hold, many of the lumber producers mistakenly cut production as they feared the economy would go into a recession. Unfortunately, they couldn’t have been more wrong as demand for new houses and renovations spiked. The price of lumber hit $1,500 per thousand board feet in March 2021 which represented a 400 percent year to year increase. 

Since then, lumber prices have dropped to $900 per thousand board feet but this is still well above the cost of lumber in the years prior to Covid. 

In addition to lumber costs, supply chain issues have made home appliances, furniture and other home accessories more expensive. In fact, according to a recent survey, appliances were rated as the item in most short supply, lumber came in second. 

Climate change has also contributed to higher insurance premiums. As severe storms, wildfires and even winter freezes start to take effect due to climate change, insurance premiums will be going up. Industry data shows that insured damage from tornadoes, hurricanes, severe storms, wildfires and other natural disasters hit $82 billion this year, which brings the total damage from 2017 to present day to more than $400 billion.

As severe weather becomes more frequent, the cost of repairing or rebuilding a home will continue to rise, particularly in areas where the weather damage is widespread. When a fire, hurricane or tornado hits a community, destroying numerous homes and businesses, material and labor costs will spike in the area for at least 6-9 months, pushing up the cost of repairs and rebuilding. These spikes in cost can suddenly push the cost of repairing or rebuilding your home above your coverage limits. 

Many experts recommend an extended replacement cost endorsement which usually comes with an additional premium but offers additional protection in the event of a major disaster that sees construction costs rise dramatically in your area. An extended replacement cost extends your dwelling coverage by 10% to 50% of the cost to rebuild your home.

Home insurance costs are rising in some states faster than others. Data from the III shows that Colorado saw a 21 percent increase in the average premium from 2017 to 2020. Texas saw an 18 percent increase during the same time frame while California’s rates jumped up 9.6 percent. 

Tips to Lower Your Premium

Here are a few tips for saving money on your homeowners insurance:

Shop your coverage: This is probably the best way to lower your premium. Insurance companies rate risk differently which can result in dramatic differences in premium quotes. Shop at least five different insurance companies and always compare apples to apples when it comes to coverage levels and deductibles. 

Raise your deductible: Raising your deductible can result in major savings. If you can afford to double your deductible expect to see major savings. Always choose a deductible that you can easily afford in the event you have to make a claim on your policy. 

Upgrade your home: This is particularly helpful if you live in an area where severe weather is an issue. Upgrading your roof with wind resistant shingles or replacing windows with storm resistant ones can result in a major discount on your premium. Check with your insurer to see what upgrades will result in a discount.