Why Homeowner's Insurance Has Become So Expensive
You may be wondering why your homeowner’s insurance policy is seemingly constantly going up each and every year. Some reading this article may have even experienced 300% increases in insurance costs. This begs the question, “What gives?”
There are a number of factors that go into how much your homeowner’s insurance premiums are calculated with the primary driver being what’s called Coverage A. This is the amount the insurance company is insuring to cover should your home be completely lost. In layman terms, how much your physical home (the doors, windows, walls etc.) is worth. So, what are some reasons why your policy may be more expensive than it was?
- Your home is simply worth more – It is no secret that the value of homes have drastically increased, especially in the Charleston area. As your home increases, so does your Coverage A. That increase in risk has driven insurance companies to increase premiums. Think about it like this, what would cost more to insure, a Ferrari or a Honda? Same logic applies to your home.
- The cost of materials – Like the value of your home the cost of materials to repair your home in the event of a claim have also increased. Over the last 5 years the cost of lumber has increased by over 50%. The same, or more, could be said about copper, glass and steel. All components that may be used to repair your home.
- Powerful tropical storms – Insurance companies tend to look at risks in “pools” or groups of similar properties. Charleston, SC whether we like or not, is often pooled with homes in Florida, Alabama, Mississippi and Louisiana. While there hasn’t been a devastating hurricane in Charleston over the last few years, there have been in other pooled locations. Insurance companies have responded by increasing premiums for all pooled locations to account for this risk.
- Reinsurance costs have increased – Most are not aware that insurance companies often take insurance out on the insurance they write. This is called “Reinsurance.” As Reinsurance companies consider the first 3 bullet points, they are likewise increasing that cost of reinsurance to insurance companies such as Travelers, Progressive, USAA etc. This reinsurance has gotten so out of hand that in some instances insurance companies were LOSING money on all of their homeowners’ policies. This had led them to simply leave the market altogether.
- Limited Options – As mentioned above, a lot of carriers are simply choosing not to do business in coastal areas. This has led to companies no longer writing business or in some cases becoming insolvent (aka bankrupt). As competition leaves a market, prices will increase.
So, what can you do? There really isn’t a simple answer but we have seen some strategies work out. These include strategies like increasing deductibles, updating roofs, updating siding, or installing hurricane proof windows. Another option is to review your policy. Some policies sold many years ago had inflation riders and non-cancelation riders built it. Right now, these are like gold and keep them as long as you can. If your policy has drastically increased, it may be time to shop it out. Click the link below and we can see what we can do about saving you some money on your insurance premiums.