Understanding the Surge in Home Insurance Premiums

In recent years, homeowners across the country have noticed a dramatic increase in their insurance premiums. A myriad of factors are behind this trend, and it seems like this escalation is here to stay. So, what's driving this steep rise? Let's delve into the key reasons contributing to the surge in homeowners insurance premiums.

1. Rising Construction Costs: An escalation in building material costs is a substantial contributor. Supply chain disruptions and inflation affecting the economy have seen the cost of essential materials such as wood and steel increase significantly. In fact, the cost of construction materials and labor has surged roughly 30% over the last couple of years, contributing to the overall rise in homeowner's insurance premiums.

2. Increased Severity and Frequency of Extreme Weather Events: Climate change has given rise to more frequent and severe weather phenomena, including hurricanes, tornadoes, and floods. The extensive damage these events cause translates into a higher financial risk for insurance companies, which inevitably reflects in increased policy premiums.

3. Growing Claims Activity: The last few years have seen an uptick in homeowners insurance claims. This is not surprising given the data from the National Insurance Crime Bureau, which shows an alarming 27% increase in insurance fraud cases from 2017 to 2019. Coupled with factors such as an aging housing stock, the rise in extreme weather events, and the escalating cost of living, it's clear why insurance claims are on the rise.

4. Regulatory Impact on Rate Forecasting: In states like California, insurance companies are prohibited from using comprehensive forecasting to determine future claims costs. Instead, they must base their rates on 20-year-old data and are not allowed to increase rates in line with cost increases they foresee. This regulation can result in significant losses for insurers, potentially forcing them to spread the costs across policyholders in other states to maintain profitability.

5. Exodus of Large Insurance Companies: High-risk areas, particularly coastal regions, are witnessing an exit of major insurance companies. This results in reduced capacity, leading to higher insurance costs for the homeowners remaining in these areas.

6. Surge in Reinsurance Costs: Reinsurers, which insurance companies depend on to balance their risk, are not regulated and can set their rates freely. Given their growing reluctance to participate in high-risk areas, smaller companies in these regions are left with skyrocketing reinsurance costs and limited capacity, subsequently driving up premiums.

7. Population Increases in High-Risk Areas: More people are moving to areas prone to catastrophic risks, escalating the exposure of insurance companies. With higher numbers of catastrophic events (like the Ice storm in Texas and multiple hurricanes), insurance companies are faced with more potential payouts.

8. Elevated Litigation and Fraud Costs: Higher litigation costs associated with claims and an increase in insurance fraud compared to the past further contribute to premium increases.

Bob Hartwig, Ph.D., a leading expert in the insurance industry, recently noted, "Increasing severity of natural disasters, as well as escalating replacement costs of homes, are putting considerable upward pressure on insurance premiums. This is a trend we expect to continue as the impact of climate change intensifies."

The current climate change scenario and the increasing frequency and severity of extreme weather events suggest that homeowners insurance premiums are set to continue their upward trajectory. In fact, according to a 2022 survey by the Insurance Information Institute, the insurers' combined ratio had risen by 3.9% compared to the previous year. This further indicates that insurance companies are paying out more in claims and expenses relative to the premiums they collect, leading to increased premiums for policyholders.

At Wayne Lilly Insurance, we are committed to keeping our policyholders informed and working tirelessly to provide the best possible coverage options amidst these challenges.

Hurricane season is near. How to prepare your home for severe weather

Each year, the country is hit with hurricanes, tornadoes, hailstorms, super storms, flooding, and more. Of course, you have insurance to help you recover. But knowing and doing a few things now—while the weather’s fair—can help you and your family stay safe and help you protect your property if the unexpected happens.

Here are a few things you should know before a storm hits:

1. The elevation level of your property—It’s a good idea to know your home’s elevation and prepare accordingly. FloodTools.com has some great tips for planning for a flood. And although you might not be able to prevent flood damage, you could take measures to avoid losing truly irreplaceable things.

2. Where to find shelter—When a storm hits, the last place you want to be is outside. Even a car is not a reliable place to take refuge. It’s best to think through where to go beforehand—to have a plan. Basements, the bottom floor of a building, or under a stairwell are good places to wait out a storm.

3. Evacuation routes—When appropriate, local officials will provide information about evacuation routes through the media. But these routes are typically available at any time online. It’s a good idea to be familiar with these routes before a storm hits so you know where to go.

4. A safe place for your car—Ideally, your car would be with you as you evacuate. However, if you can’t take it with you, park it indoors or on high ground away from potential sources of damage (falling debris, projectiles, etc.). Be sure to have a tarp and waterproof tape handy to seal your windows and doors, as well.

5. How to know a storm is coming—You can spot a tornado brewing by the dark, often greenish, sky; big hailstones; and large, low-lying clouds. You’ll also hear a roar, similar to a freight train. In the case of a hurricane, look for increasing ocean swells, frequency of waves, and driving rain 36 to 72 hours before it hits.

And, a few things to do:

1. Keep your car fueled up—Don’t wait until it’s time to evacuate to realize you don’t have enough gas. Gas stations will often be closed during emergencies, and the pumps won’t work if there’s a power outage. Be sure to have at least a half tank of gas at all times.

2. Keep the landscaping in check—Well-trimmed trees and shrubbery are more wind resistant. And that means they’re less likely to become flying battering rams in a storm.

3. Have materials ready to board up your windows—Storm shutters offer the best protection, but if you don’t have them, 5/8 inch marine plywood is a good alternative. Cut these boards to fit in advance, and keep them at the ready so you can use them when it’s time. Check out this website for instructions on how to properly board up your house.

4. Make an emergency kit—In the event of a severe storm, you might have to wait for days before help arrives. Have enough food, water, and basic supplies to last at least 72 hours.

By no means is this list exhaustive, but hopefully it gets you pointed in the right direction. And, of course, there’s no shortage of helpful tips you can glean from the Internet. For example, Ready.gov is a great resource to mine for more proactive ways to be … well, ready. And, there are many mobile apps these days that offer everything from storm tracking to tips for being prepared.

Knowing what to expect, and doing the prep work in advance, will help you weather the storm as best as possible.

“Plan for what is difficult while it is easy, do what is great while it is small.”—Sun Tzu, The Art of War

Be prepared with the right insurance coverage

To learn more about this or any of your insurance needs, please contact a team member at Wayne Lilly Insurance