Homeowners often jump to the conclusion that higher premiums at renewal time is mainly the result of claims they filed during their policy term. But individual claims play only a small role in any home insurance price increase.
4 reasons home insurance rate go up
The real culprits behind high home insurance rates are:
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Loss costs.
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Reinsurance.
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Litigation.
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Fraud.
“Loss costs” describes the amount insurers pay to administer, investigate, and cover claims. More severe storms and higher construction costs means higher loss costs for insurers. That additional expense is reflected in insurance premiums.
The next issue, reinsurance, is one way insurance companies transfer some of the risk of covering catastrophe-prone areas to other companies. Again, more severe storms have caused bigger losses, and that’s making reinsurance more expensive.
Excessive litigation is an issue in some states, and it can also cause home insurance rates to go up. Take Florida for an example. In 2021, the state accounted for 8% of home insurance claims, but 76% of all home insurance lawsuits.
The last reason for higher insurance premiums is fraud. According to the FBI, non-health insurance fraud costs over $400 billion per year.That translates to between $400 and $700 per year in increased premiums per family.
All three of these have had a hand in rising home insurance premiums in Florida, and Louisiana is facing similar issues. But the problem isn’t limited to catastrophe-prone states. In 2023, the US had 28 billion-dollar weather disasters spread over much of the country.
Other reasons behind home insurance price increases
While reinsurance and loss costs can cause home insurance prices to go up, they aren’t the only factors that determine your premium. Some you can control; others you can’t. These are the 6 additional reasons home insurance rates increase.
1. Your company paid out a lot of claims
Laws in most states require insurance companies to set rates that allow them to cover their reinsurance and any claims they anticipate paying.
Perhaps the most noteworthy reason for a large number of claims is natural disasters. When a catastrophe hits, an insurance company often has lots of expensive claims all in one region.
Fraud, however, can also be a factor. Take Florida for example. Assignment of benefit scams in homeowners insurance were so rampant in the state that the legislature passed a law in 2022 banning these agreements.
2. Inflation
We already mentioned how the high construction costs can cause a home insurance price increase, and that’s at least partly due to inflation. But inflation and construction costs can also impact your homeowners premium more directly.
When construction costs are high, it costs more to rebuild your home – which means you need more dwelling coverage in your policy. So your insurance rates may increase if your limits were adjusted to account for inflation and the cost of rebuilding your home.
3. You added an attractive nuisance
Attractive nuisances (Think: swing sets, tree houses, trampolines, swimming pools, and slides) can mean higher home insurance rates. These items may attract visitors to your yard – both known and unknown as well as wanted or unwanted – and cause injuries. And unfortunately, you can be held responsible for their injuries, even the ones your uninvited guests experience.
4. You made some big home improvements
Home improvements increase the value of your home, but they also make it more expensive to rebuild your home. As you might’ve guessed, that can make premiums go up.
That’s especially true if the improvements add square footage or substantially increase the quality of a room. For example, upgrading from particle board cabinets to custom cherrywood cabinets is a big difference in the cost to replace them if you have a claim.
5. You have outdated electrical, plumbing, or HVAC systems
If you have an older home, outdated systems can make it more expensive to insure (or hard to insure altogether). Investing in plumbing upgrades or replacing recalled electrical panels can not only make your home safer, but they may make your homeowners insurance more affordable in the long run.
6. Your roof is getting old
Your roof protects everything under it. As it gets older, it doesn’t do that job as well. An older roof is more likely to have leaks and experience wind and hurricane damage.
How long a roof lasts depends on its shape and building materials plus the weather conditions in your area. You may want to check your roof’s condition – either from the ground or by hiring a professional to inspect it. We don’t want anyone accidentally falling off their roof!
Remember, you don’t have to wait to check your roof for damage. If you see signs of damage, talk to a professional to find out if it’s time to replace it.
5. You lost discounts
Read through your renewed homeowners policy and look for any discounts that might not have been applied or expired. If a discount wasn’t applied, it may be because you didn’t submit proof of a wind mitigation inspection or safety devices. That can cause these discounts to be removed and make your rates go up.
That’s easy enough to correct – just contact your provider and submit the discount documentation.
6. You adopted a dog
All dogs are good dogs, but some are restricted breeds. If you have a German shepherd, for example, your rates may increase to cover potential bite claims, and those aren’t cheap. Overall, home insurance companies paid over $1 billion in dog bite claims in 2022.
Dealing with rising home insurance rates can be frustrating, but it’s important to know what other factors are pushing them higher. In some cases, you may be able to bring your premiums with a few simple changes or by working with your insurance company.
But if you do decide to look for a new policy, give us a try. You can get a quick quote simply by entering your address.
