Why home insurance rates are increasing
Home insurance rates are increasing for several reasons, including inflation, climate change, higher material costs, supply chain issues, and increased claims for fire and water damage. Different factors, like your credit score, ZIP code, and the coverage level you need, also affect how much you’ll pay for home insurance coverage.
Inflation is driving up repair prices
Inflation is one of the main reasons prices are increasing across the board and one of the biggest reasons behind home insurance increases as well. It’s partly due to supply chain issues and increases in consumer demand, and it’s significantly affecting the insurance market. Economists aren’t exactly sure when it will end, but some insurance experts weighed in on how it will affect insurance in 2023 for Insurify’s home insurance report.
Why are premium rates increasing?
Mark Friedlander
“U.S. auto and homeowner insurance premium rates lagged behind the inflation rate in 2020 and 2021, laying the groundwork for the premium increases which occurred last year and will continue into 2023,”
“The same inflationary pressures that are driving up your grocery bill are now driving up your homeowner insurance rates,” says Colleen Finn, managing director of home product management at Plymouth Rock, a Boston-based insurer. “It is costing more and taking longer to repair your home, increasing the average cost per claim and ultimately the cost of homeowners insurance for everyone.”
Climate change is leading to more severe weather
Another key reason for home insurance increases is the rise in severe weather and natural disasters, such as floods, earthquakes, hurricanes, and wildfires. Homes in areas prone to natural disasters often see higher insurance rates than homes in low-risk locations.
The Federal Emergency Management Agency (FEMA) assigns a risk rating denoting the probability and severity of natural disasters across the United States. Homeowners located in areas of “very high” risk pay almost 2.5 times more for home insurance as those living in areas of “very low” risk, according to Insurify’s analysis of Quadrant homeowners insurance rates and FEMA’s assigned risk rating.
For every 1-point increase in a county’s FEMA risk index score (scaled 0–100), homeowners can expect to shell out an extra $24 in annual home insurance premiums.
Average insurance premium by FEMA risk rating
Many homeowners already feel that climate change has affected their homes’ values. Insurify surveyed 700 homeowners in key housing markets across the country, and 45% felt that climate change had already affected their homes’ values. Also, 76% felt a mild to high level of concern that climate change could eventually affect their homes’ values.
Finn notes that the increased frequency of natural disasters is also affecting the re-insurance market. “This is causing a hardening of the re-insurance market — which [insurers] purchase to protect policyholders in the event of a significant catastrophe — and driving up homeowners insurance premiums across the country, not just in catastrophe-prone areas,” says Finn.
Homeowners can get ahead of the impact of climate change on home insurance in several ways, like installing secure rooftop HVAC systems, reinforcing their roofs, and installing hurricane shutters. These steps will protect your home, and insurers may offer reduced rates to homeowners who take these risk-reduction measures.
Share of homeowners concerned over the impact of climate change on their home’s value
Supply chain delays
Higher material costs and supply chain issues are two other significant reasons for the expected homeowners insurance cost increases, according to insurer Plymouth Rock. These two issues go hand in hand, as scarcity of materials drives building costs up, making home repairs more expensive, which leads insurers to raise premiums to offset the costs.
Increased instances of fire damage
Many newer homes comprise different materials than older homes, such as pressed wood, which can lead to more instances of fire damage, according to Plymouth Rock. Furthermore, climate change and the increased risk of natural disasters lead to a greater risk of fire damage, causing insurers to implement higher rates.
“As we see a higher frequency of climate-related catastrophic events — wildfires, storms, floods, etc. — insurers will have no option but to price in the increased risk,” says Sam Eckhouse, principal at ClimateCheck. That means higher insurance premiums for homeowners, especially if they live in a high-risk area and haven’t taken steps to mitigate the risk of damage or loss.
If you plan on purchasing or building a home, consider the construction materials you’re using. Your home insurer may offer cheaper rates for homes built with less-flammable materials. You can also reduce rates by installing a sprinkler system and other safeguards to prevent extensive fire damage. Insurers often reward homeowners with lower rates when they take steps to minimize risk.
Increased instances of water damage
Many homeowners are placing appliances, such as washing machines, on the second floor of their homes, leading to increased water damage, according to Plymouth Rock. Other factors, such as coastal flooding and extreme weather, also lead to increased water damage, which insurers factor into policyholders’ premium costs.
However, flood insurance isn’t part of your home insurance policy. Flood insurance covers you from damage caused by floods and flood-related problems, such as storm floods, floods caused by a dam failure, and river overflows. Many private companies offer flood insurance, but FEMA offers affordable flood insurance if you can’t find one that suits your needs.
You can also take measures to reduce the likelihood of flood damage, such as waterproofing ground-level windows and doors, installing a sump pump, and raising your home’s foundation. Many insurers offer reduced rates to homeowners who take steps to minimize risk. Ask your insurer about any discounts or benefits for flood-related risk reduction.
