Why Your Homeowners Insurance Premium Is Going Up

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It isn’t your imagination. The cost of homeowners insurance premiums have been rising, even if you’ve never had a claim.

Homeowners insurance premiums rose on average between 10% and 12% in 2023 and they are on pace for the same if not higher rate increases this year. One study found that premiums had increased 19% over a two-year period.

In some parts of the country, the increases were even more dramatic. CNN interviewed a homeowner in Santa Clara, California, whose premium nearly doubled last year from $1,700 to $3,200.

Forecasters expect double-digit premium increases in 2024 in states as varied as Maine, Michigan, Montana, Utah and the Carolinas.

Some states are having difficulty keeping insurance companies in their markets. California, Florida and other Gulf states have seen insurers exit their markets. State Farm stopped writing new policies in California last year and is non-renewing tens of thousands of policies this year.

Farmers left the Florida market entirely. Worse, more than a dozen companies writing homeowners insurance in the state did not have enough money to pay claims in 2023.

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Many people in California and Florida have also seen their policies dropped by their insurers and have been unable to find coverage in the open market, forcing them to go to their state’s market of last resort.

What’s driving the market

More severe catastrophe losses. Although wildfires have become less frequent and burned fewer acres over the last several years, populations have grown in the areas where they do occur. One-third of the country’s population lives in these areas, accounting for more than 46 million homes and $1.3 trillion in home values.

In addition, severe weather events have become more frequent and intense. Insured losses from hurricanes have been increasing since 2008. Nine of the 10 costliest hurricanes (in terms of paid insured losses) have occurred since 2005.

At the same time, populations and home values have also increased in windstorm-vulnerable areas. For example, in the 2010s the population of Texas grew by 15.6% and the median home value rose 23.3%. Forecasters have predicted an “extremely active” Atlantic hurricane season this year.

Higher replacement costs. Insurance companies set limits of insurance on buildings based on what it would cost to replace them, not their market value. Those costs are increasing; CBRE has estimated that construction costs rose 14.1% in 2023. Higher building materials costs and labor shortages are driving those increases.

Supply shortages caused by the COVID-19 pandemic have eased and reduced growth in materials costs. However, energy costs have swung dramatically in response to wars in Ukraine and the Middle East. Labor shortages also persist; the national unemployment rate has been below 4% for two years.

Increased reinsurance costs. Insurance companies buy reinsurance, which are policies that transfer some of their risks to other insurers. Reinsurance typically applies to large loss events. With increasingly erratic weather worldwide and large losses from events like earthquakes and civil unrest, reinsurance premiums soared by as much as 50% in early 2024.

What you can do

To cope with rising premiums, work with us. We can seek out options for you, if they exist. Also, increasing your deductible, if you can afford to do it, may reduce your premium.

Making investments to improve your home’s ability to withstand storms and wildfires may make it more attractive to insurers.

This is the most difficult homeowners insurance market in recent memory. It may be some time before conditions improve. You are likely to pay more, but there are things you can do to improve your situation.

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