If you recently received a homeowner insurance billing and noticed your rate went up, you’re not alone.
Veteran insurance agents remember when homeowner insurance rates, in many states, were only a few hundred dollars a year. And furthermore, it wasn’t unusual for rates to stay exactly the same year after year. Regrettably, times have changed.
If you consider the number of tornados, windstorms, violent weather occurrences, fires, etc. that have happened in your immediate vicinity during the last five years, it’s not hard to understand why there is pressure for homeowner insurance rates to increase.
If a residence is damaged by windstorm or tornado and needs a roof or siding replaced, homeowner’s insurance will normally pay for that damage.
The issue is easier to understand after we do the math. If 100 newer properties in an affected location have hail damage and need roofs replaced (let’s not even consider damage to siding) and if the average replacement cost of each roof is $30,000, then the total amount paid for this one occurrence alone could be $3,000,000.
This simplified example does not take into consideration that a big hailstorm or tornado could damage more than 100 homes and that the average damage could be much higher than $30,000. Nevertheless, if a total loss was limited by these factors, it would still take annual premiums of $2000 from 1500 homeowners just to cover this one catastrophic loss.
Insurance companies are fighting to break even and get a return on their investment. When consistently escalating building supply and labor expenses are factored in, the insurance company conclusion is inevitable. Homeowner insurance rates have to go up.
Insurance companies are doing more than just raising rates. In some instances coverage is being decreased significantly. Another trend is for insurers to adopt ACV (actual cash value) adjustments on roofs if a roof is over 10 years old.
In other words, an ACV roof loss adjustment calculation could look like the following:
Let’s use the following assumptions: a 20 year roof life span (keep in mind that a lesser life span could be used), a 12-year-old roof, and a roof replacement cost of $30,000. The ACV loss adjustment calculation would be as follows: (8 yrs remaining roof life divided by 20 year typical life) x (roof replacement cost) = the amount required to replace the roof — or $12,000 (8/20 x $30K = $12K). The result in this example is a $30,000 loss with $12,000 recovered from the homeowner insurance policy.
Another trend is the implementation of wind/hail deductibles between 1% and 5% of the insured value of a property. For example, if a home is insured for $450,000 with a wind/hail deductible of $3%, the deductible for a covered wind/hail loss would be $13,500.
As a homeowner insurance consumer, the consequences of insurance choices that you make are being associated with more money out of pocket. But since you must make these choices, here are a few things that you can do.
1) Check how a higher homeowner insurance policy deductible will affect your rate. In order to keep your insurance rate in line, a higher deductible may have to be implemented.
2) When you have a loss, hire a reputable contractor. Do not assume that the first quote, the lowest quote, or the highest quote you receive will be the best. And do not use a covered loss as an excuse to replace an old roof or siding. That just contributes to the problem of increasing insurance rates.
3) Be careful if an insurance agent solicits your business by offering a rate that’s significantly lower than what you are at presently paying. Have at the least 1 or 2 experienced agents do rate comparisons. Make sure they obtain quotes from at least 3 or 4 insurance companies. Whether the rates quoted are higher or lower than the renewal rate offered by your current policy, make sure you understand the reason for the difference.
4) Be certain that your insurance agent explains how the deductibles on your policy will work in the event of different types of losses. As an insurance consumer, you need a clear understanding of how your policy will perform if a loss takes place.
As a homeowner, you may soon be asked to pay more for your homeowner’s insurance. Although rate increases may not be avoidable, by following these tips you’ll put yourself in the position having the best coverage available for the insurance dollars that you pay. If you want to be a smart insurance consumer, make informed choices about insurance claim repairs, deductibles, coverage, and the insurance agent you ultimately decide to trust.