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January 3, 2023

The dynamic environment of homeowners insurance

The homeowner’s insurance market is changing rapidly. From increased premiums and stricter underwriting requirements to new coverage offerings that provide protection beyond your four walls. Follow us as we explore the evolving environment of homeowner’s insurance and outline options to help navigate this changing market.

What determines my homeowner’s premium?

While there are hundreds of variables that insurance companies use to calculate your homeowner’s premium, below are a few of the significant factors.

Significant factors that affect your premium:

  • The amount of coverage on your policy: replacement vs. market value.
  • Your home’s location and propensity to be impacted by natural disasters such as hurricanes, wildfires, tornadoes, floods, high winds, hail, freezing, etc.
  • Your roof material and age. The age of your roof and material is becoming increasingly important underwriting criteria. Many insurance companies have placed coverage restrictions around older roofs, wood shake, and metal roofs.
  • Your homeowner’s deductible and claims history.
  • Unique characteristics of your home such as the age, construction type, custom built-ins, and high-end finishing as well as special features. (i.e. sport courts, in-home theaters, wine cellars, etc.).
  • Loss prevention devices in your home. See below for additional details.

Why does my homeowner’s premium continue to increase?

The rising cost of homeowner’s insurance can be directly attributed to the increased number of natural disasters and extreme weather events. In addition to the increased frequency and severity of these extreme weather events, it costs insurance companies more to address the damage and return the home to pre-loss condition.

Increase in natural disasters and extreme weather events

  • U.S. catastrophe-related disasters accounted for $92 billion in 2021, totaling over $400 billion since 2017.
  • There were 20 separate $1 billion+ loss events due to weather in 2021 according to the NOAA National Centers for Environmental Information (NCEI). This is double the number from ­just two decades ago.
  • Since the 1980s, average annual insured natural catastrophe losses have skyrocketed nearly 700%.
  • In the past five years, windstorms and hail have accounted for a substantial number of losses. This has led to a rising trend in percentage-based deductibles, rather than dollar amount-based deductibles as was common in decades past.
  • Fire, lightning, and freezing-related perils are also on the rise. In fact, some estimates say as many as 4.5 million U.S. homes are at high or extreme risk from wildfires.

Increase in the costs associated with rebuilding your home

  • In addition to the demand surge, the cost of materials continues to increase. General framing lumber and plywood are by far the most prevalent materials in homes and have increased by 15-30% due to taxes/tariffs imposed on imports from China and Canada. Tariffs imposed on exotic and imported materials found in most luxury homes have increased by 12-18%.
  • The cost of skilled labor has increased by 10-15% and specialty labor for finish trades has increased by 20-35%.
  • The cost to replace your home’s electronics and appliances also continues to rise.

What can I do to reduce my premium?

This increase in catastrophic events is not limited to the U.S. as we saw in Australia in 2019 with the devastating widespread fires. Most scientists agree that as temperatures continue to rise, these extreme weather events will continue, if not worsen. All is not lost though. There are several ways you can reduce your premium.

Review coverages & system updates

  • Consider increasing your deductible. The average homeowner files a claim every 10 years. Most of our insurance carriers will waive your deductible for a covered loss over $50,000 (exclusions apply).
  • Review your other structures and personal property limits. Let us discuss how much coverage you need for these items. There is not a "one size fits all” approach when it comes to valuing personal property within the home.
  • Ensure your major home systems are accurately depicted on your policy. Have you replaced your roof lately? Added a permanent generator or updated an alarm system? Any significant changes to your home’s electrical, plumbing, heating, and roofing systems can potentially reduce your premium.

Install loss-prevention devices

  • Central station and burglar fire alarm systems.
  • Low-temperature monitoring systems. The average cost for a device & installation is $250-$600.
  • Permanent backup generator. The average cost of a system is $7,000 - $30,000.
  • Proper insulation. Ensuring your home has adequate insulation and ventilation is essential to preventing ice dams and pipe bursts.
  • Water leak detection & shut-off system. The average cost for a device & installation is $800 - $2,100.

As water damage claims are increasing in both severity and frequency, many insurance companies are requiring water leak detection systems on homes with prior water claims or unoccupied/secondary homes. Many of our insurance carriers have negotiated discounts for water shut-off systems.

If you have recently installed any of the above loss prevention systems, please contact us so we may review your policy and ensure all applicable credits are reflected.

Contact us today

If you have additional questions or concerns regarding your homeowner's policy, please don't hesitate to contact us.

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