What you can do about the rising cost of home insurance

The cost of insuring a home is rising, forcing Americans to make tough decisions about whether to cut coverage or make major changes to protect their wallet.

The nationwide average annual premium for homeowners insurance today is $1,398, according to estimates from the business group Insurance Information Institute. The group says premium rates increased by an average of 11.4% from 2017 to 2020. This is higher than the country’s 7.9% inflation rate during those years.

According to MarketScout, a firm that monitors insurance rates, premiums have grown on an average of 6.6 per cent in the third quarter this year from 4.8 per cent in the second quarter. MarketScout says costs were up 25% in parts of California and Florida, and homes worth more than $20 million with high wildfire risk faced an even greater increase.

The increase in home-insurance premiums is largely driven by the same factors straining other segments of Americans’ budgets. For example, higher prices for building materials and other supply-chain disruptions have increased repair and rebuilding costs for insurers.

Home insurers also face other serious issues.

Insured damage in the U.S. from hurricanes, severe storms, wildfires and other disasters has exceeded $370 billion in 2020 dollars since 2017, according to estimates by risk modelers and industry executives. Insurers are reporting rate increases that reflect the increased volume of disaster claims they are paying.

“I think a lot of people are going to feel increasingly stressed,” said Kevin Mahoney, a certified financial planner and founder and CEO of Illumint, a financial advisory firm for young couples. “Let’s take a family that was already starting to feel the effects of inflation in one way or another, and then they also fall into the category of people who are going to see their insurance premiums increase.”

Michael Klein, president of personal insurance at large insurer Travelers Cos, told analysts this week that home-insurance costs went above company expectations in the third quarter due to “a combination of increased labor and material prices.”

The company “will continue to demand price increases in response,” he said.

Travelers is one of the first property insurers to report earnings each quarter, and its results are closely watched as a bell to others. Allstate Corp flagged the issue of inflation in its second-quarter earnings call in August, in which a senior executive said repair-cost increases were “hitting the homeowners’ side hard.” Allstate posted third-quarter results on Nov. 3.

Lumber prices have been particularly volatile this year and are up 42% from September 2017. It’s one of the most relevant benchmarks for home insurers’ repair costs, said Del Porfilio, chief insurance officer at the Insurance Information Institute, which is known as Triple-Eye. .

The national average does not reflect the greater pain felt in risky locations.

According to the Wall Street Journal’s Triple-E analysis, using data from S&P Global Markets, the states that have seen some homeowners increase the most in the past 21 months include California, Colorado, Florida and Louisiana. Where there are storms and forest fires. Intelligence. Regulators approved a hike of more than 9% annually for some policyholders in those states.

In addition, on October 1, the government’s National Flood Insurance Program began rolling out a new pricing method for the policies that many homeowners rely on for flood coverage. This would reduce rates for about a quarter of the program’s policyholders but some homeowners face a larger increase.

Private sector options are becoming increasingly available as an alternative, thanks to improved risk-modeling techniques and other technology to identify risks that carriers are willing to underwrite. The good news for consumers is that these options may cost less in some places, and may provide wider coverage than government policies.

As home-insurance premiums rise, many Americans are looking for ways to reduce costs. Often, insurers offer discounts for home improvements that minimize damage, such as installing storm shutters and elevating utility systems.

In Melbourne Beach, Fla., Michael and Kathy Brohn faced rapidly rising premiums over three years on their 2,450-square-foot home, to $5,596 in 2019.

He talked to his insurance agent, Shane Robinson, owner of the agency Robinson Insurance Inc., in Indialantic, Fla., about ways to reduce costs.

Last year, they installed a hurricane-resistant garage door, upgraded some windows not already to hurricane-strength levels, and hired a licensed home inspector to document that their roofs were under strict building-codes. Tied according to standards.

Those moves cost about $3,000 — and annual premiums drop by about that amount.

“We basically got all our money back in the first year,” Brohan said.

Consumers can look to government-funded grant programs to help subsidize some projects, said Anna Weber, senior policy analyst at the Natural Resources Defense Council. The federal flood-mitigation assistance program is aimed at people who have experienced multiple floods and can help families reduce their risk of future flooding, but most cover more expensive refurbishing, such as house elevation. .

For lower-lift floodproofing, such as elevating outdoor HVAC equipment, Weber directs consumers to state and municipal programs. He said residents should contact their local flood zone manager or risk-mitigation officer to find out what’s available and what they might be eligible for.

“Flood insurance does not prevent floods,” she said. “It can be a really important safety net if your home is damaged in a flood, but you can get as much insurance as you want and it’s not really going to prevent that damage.”

Angela Moore, a certified financial planner based in Orlando, said consumers should make it a habit to visit their insurance agent at least every one to three years to review what is and isn’t included in their policy. He added that homeowners facing growth may find fat that can be trimmed.

“Sometimes these insurance policies are loaded,” she said. “So there might be the ability to eliminate some of those extra things and keep the coverage you might really need.”

The rising premium is just one in a series of financial difficulties many Americans are struggling with, including higher costs for groceries, gas, heating bills, rent and more.

Mahoney with Illumint said some customers are hesitant to dip into their emergency savings for more than a year in the pandemic. But in the example of a substantial increase in the flood-insurance rate, Mr. Mahoney encourages consumers to shed this hesitation and tap their savings in exchange for cheaper policy options. He said it is better to pay for the increase while considering longer term options rather than cancel the policy.

“If the primary goal is to maintain your financial stability, at least in the near term, while you get your feet under your feet and figure out the next steps, that’s fine to do,” he said.