- Consumers are seeing rate increases of 3% to 30% in their homeowners insurance premiums.
- Comparing insurance companies and bundling your policies could save you money on your policy.
- Avoid a claim by performing routine home maintenance to keep your insurance costs low.
Homeowners may see an increase in their homeowners insurance premiums this year.
In October 2021, S&P Global Market Intelligence reported a 3% to 30% rate hike in insurance premiums across major home insurance providers, with State Farm having the most significant rate increase. The report also found that Texas saw the most significant increase in homeowners insurance rates compared to other states in the US.
The Insurance Information Institute cited three main developments that led to the rise in homeowners insurance premiums.
1. Extreme weather and natural disasters
One primary reason for home insurance rate hikes is the rise of extreme weather and natural disasters. According to data from the III, the number of claims from natural disaster losses has risen by 700% since the 1980s. Lauren Menuey, managing director at Goosehead Insurance — a personal lines insurance agency and digital agent shopping platform, tells Insider that if you filed a claim in the last three to five years, you might see an increase in your premiums.
2. Population shifts
Secondly, populations are migrating to areas where the risk of extreme weather is high. From 2016 to 2020, 50 counties facing the highest share of heat risk saw a 4.7% population growth. Similarly, the counties with the highest drought, fire, flood, and storm risk experienced a 3.5%, 3%, 1.9%, and 0.4 growth in population, respectively, Redfin reports.
3. Rising construction and labor costs
Finally, construction material and labor costs are on the rise due to inflation. Therefore, the cost to cover your home will not be the same as your coverage amount when your home was first built, especially if your home is older. Consequently, you will have to pay more for your home insurance so your home is not underinsured. Homeowners insurance providers will usually have optional coverage that protects policyholders from inflation. This adjusts the coverage amount on your policy when the replacement cost of your home also increases, says Menuey.
In 2021, homeowners insurance providers saw a combined ratio above 100%, which indicates that home insurance companies experienced a significant loss in profit due to natural disasters, population shifts, and inflation, reports the III. Many insurance companies will have to raise their premiums to remain profitable and meet financial obligations to policyholders.
How to save on your insurance policy
You may not be able to avoid a rate increase on your homeowners insurance, but there are still ways to potentially curtail your cost. Menuey suggests actions you can take to lower your homeowners insurance premiums:
- Shop around: Either use an online broker or work with an independent agent to find an insurance company with the best coverage and the most competitive rates. Bundling your home, auto, and umbrella policies may allow you to save on your insurance policy significantly.
- Perform routine maintenance: Reduce the potential of a claim by ensuring your home systems are operating properly. Menuey also recommends installing smart home technology to alert you of potential damage in your home.
- Make your agent aware of any changes to your property: Updating your home systems and installing a new roof when needed can help you save more on your policy. Additionally, it is essential to speak to your agent about major home renovations, as they may impact the value of your home and the amount of coverage you’ll need.