Rising Cost of Homeowners Insurance
Many people can expect their homeowners insurance rates to go up this year—along with the rising cost of materials and supplies—in this economy.
Several factors are behind the rising costs. Severe weather events continue to cause serious damage and costly insurance claims. The rising cost of building materials, supply chain issues and unfilled jobs are driving up the costs of home repairs.
In this article, we’ll explain some key factors causing home insurance rates to rise and what you can do to help rein in your costs.
What are some key factors driving up home insurance rates?
Extreme weather events and catastrophes
Hurricanes, floods, droughts, wildfires and other severe weather events have become more frequent, destructive and contributing to rising costs. As of October 11, 2022, the United States sustained 15 weather events with losses exceeding $1 billion each.1 As weather-related damages go up, so does the cost of insurance overall. Insurers typically adjust rates on a state-by-state basis based on actual and anticipated weather-related losses.
Rising cost of materials
Another key consideration when pricing homeowners coverage is the cost to repair or rebuild a home in the event of a loss.
Limited supplies and inflated prices for most building materials continue. Consider this sampling of price increases between October 2021 and October 2022:
- Material goods for new residential construction rose 14.3%.2
- Lumber and wood products went up 6.2%.3
- Asphalt roofing materials grew 14.5%.4
- As building costs go up, so does the cost to repair or replace homes damaged by covered losses.
Skilled labor shortage
The construction industry is facing a skilled labor challenge, which has resulted in added expenses related to wages, supply chain problems and other construction issues.5 This sector had 423,000 job openings as of September 2022,6 more than twice the projected number of annual openings.7
Factors impacting your homeowners rate you may be able to control
Current market conditions that affect the rising cost of your insurance premiums may be out of your control, but there are steps you can take to help keep the cost of your homeowners coverage in check.
- Install protective devices. To help avoid losses and save money, ask your insurance agent about any savings you might qualify for by taking preventive measures to protect your home. For example, Travelers offers insurance premium discounts for smoke detectors, fire alarms, water sensors, interior sprinkler systems and smart home protection devices.
- Review your insurance. Ask your agent to review your current coverage to ensure you’re getting the customized protection you need. Make sure all home improvements are accounted for. Cancel or reduce coverage you no longer need.
- Increase your deductible. A higher deductible will likely reduce your premium. Just remember to have enough savings to cover your deductible should you experience a loss.
- Bundle your policies. Travelers offers discounts when you purchase more than one policy with them. Home and auto are commonly bundled for a discount, but discounts may also apply to boat, valuables, personal umbrella protection and other specialty coverages. Learn about the multi-policy insurance discounts that Travelers offers.
- Explore customer retention programs. Travelers offers premium discounts, or credits to long-term customers. For example, the Travelers Decreasing Deductible®* program applies a $100 credit each year toward your deductible. This credit is earned at your annual renewal date even if you have a loss.
*Travelers Decreasing Deductible is not available in all states, including California.
Current market conditions are challenging. Catastrophic weather events are on the rise. Pandemic-era disruptions, including shortages in building materials and skilled labor, are driving rate changes. But there are factors within your control when it comes to the premiums you pay. It’s smart to take advantage of them.
Travelers Why Homeowners Insurance Premiums are Rising and What You Can Do
https://www.travelers.com/resources/home/insuring/why-did-my-homeowners-insurance-go-up
Sources
1 https://www.ncdc.noaa.gov/billions/
2 U.S. Bureau of Labor Statistics, Producer Price Index by Commodity: Inputs to Industries: Net Inputs to Residential Construction, Goods, October 2022
3 U.S. Bureau of Labor Statistics, Producer Price Index by Commodity: Lumber and Wood Products, October 2022
4 U.S. Bureau of Labor Statistics, Producer Price Index by Commodity: Asphalt Felts and Coatings, October 2022
5 https://www.agc.org/news/2022/08/31/construction-workforce-shortages-risk-undermining-infrastructure-projects-most-contractors-struggle-0
6 U.S. Bureau of Labor Statistics, Job Openings: Construction, September 2022
7 U.S. Bureau of Labor Statistics, Construction Laborers and Helpers, September 2021
1 https://www.ncdc.noaa.gov/billions/
2 U.S. Bureau of Labor Statistics, Producer Price Index by Commodity: Inputs to Industries: Net Inputs to Residential Construction, Goods, October 2022
3 U.S. Bureau of Labor Statistics, Producer Price Index by Commodity: Lumber and Wood Products, October 2022
4 U.S. Bureau of Labor Statistics, Producer Price Index by Commodity: Asphalt Felts and Coatings, October 2022
5 https://www.agc.org/news/2022/08/31/construction-workforce-shortages-risk-undermining-infrastructure-projects-most-contractors-struggle-0
6 U.S. Bureau of Labor Statistics, Job Openings: Construction, September 2022
7 U.S. Bureau of Labor Statistics, Construction Laborers and Helpers, September 2021
Why Are Auto Insurance Rates Rising?
Increasing auto insurance premiums have been troubling for policyholders and their wallets. According to statistics released in May 2023 by the U.S. Department of Labor, auto insurance premiums increased 17.1% in the previous 12 months. Although the cost of insurance may change each year for various reasons, this infographic can help shed light on current market factors influencing policies across the country right now:
Vehicle inventory—While the availability of new cars has rebounded since the COVID-19 pandemic, inventory levels overall are still below average, and prices for used vehicles remain relatively high. As cars remain more costly, insuring them may be more expensive.
Higher repair costs—Inflation, supply chain issues lingering from the pandemic, high demand at auto shops and a car technician labor shortage have contributed to increased repair costs and the related price of auto insurance claims.
Rising medical bills—As health care costs have risen, auto insurance companies must pay more for medical services from MedPay and personal injury protection (PIP) coverage. Consequently, premiums have also increased.
Increased claims—Car accidents and thefts have become more common in recent years, leading to more claims being filed against auto policies. As the number of claims rises, so too does the cost of insuring against them.
In response to rising auto insurance premiums, policyholders should consider the following ways to save on their rates:
- Stay safe – Avoid blemishes on your driving record by practicing safe habits behind the wheel.
- Take courses – Completing driving safety courses may unlock discounted premiums.
- Bundle coverage – Purchasing multiple types of coverage from the same insurer may reduce overall costs.
- Maintain good credit – High credit card balances, late payments and other negative effects on a policyholder’s credit score may lead to higher premiums.
- Reconsider policy details – Adjusting your coverage, such as increasing your deductible, may help limit premiums.
- Drive less – Insurers may consider how far a policyholder drives annually. By reducing mileage and reporting accordingly, costs may be decreased.
Even among increased rates, auto insurance remains a critical loss control measure for U.S. motorists. Insufficient coverage could lead to legal noncompliance penalties and, in the event of an accident, catastrophic out-of-pocket costs.
Contact us today to learn more about potential auto insurance discounts and other ways to save on your premiums.
Commercial Property: Forces Driving Increases
The commercial property insurance market continues to be challenging, with several factors contributing to premium increases for commercial property coverage:
1. Catastrophe losses
Hurricanes, floods, wildfires, tornadoes, and winter storms are occurring more frequently and with greater severity, causing annual insured losses of more than $100 billion globally in the last four years. In 2023, global insured losses totaled $118 billion, with severe convective storms (SCS) accounting for 58% of the losses globally, and six of the 10 most expensive events in the U.S. being SCS events.
2. Reinsurance
While reinsurance capacity has improved, the cost of available reinsurance capacity remains high due to the impact of catastrophic events, increasing cost of capital, financial market volatility, and inflation. These costs are passed along to customers.
3. Underinsurance
Due to increased material and labor costs, insured property replacement values continue to lag. Only 43% of business owners have increased their policy limits to accurately reflect what it would take to replace insured property.
4. Property Replacement Costs
Nonresidential construction costs have increased by 37% over the past four years, with a 65% increase in fabricated structural steel and a 37% increase in the price of concrete products. Additionally, machinery and equipment costs have increased by 22% over the same period.
5. Skilled Labor Shortage
Wages and salaries, comprising nearly half of construction costs, have increased by 22% over the past four years. However, 77% of contractors are struggling to find skilled labor. These factors may lead to higher rebuilding costs and longer delays, potentially triggering an increase in business interruption losses.
6. Property Rate Needed
Due to escalating loss trends, carriers are expected to raise rates again this year to close the gap between loss trends and rate increases.
In summary, the commercial property insurance market is facing significant challenges, leading to premium increases for commercial property coverage. The increasing frequency and severity of catastrophic events, along with high reinsurance costs and underinsurance due to rising material and labor costs, are key contributing factors. As a result, property replacement costs have surged, and there is a shortage of skilled labor, which may lead to higher rebuilding costs and longer delays. Carriers are expected to raise rates further this year to address the widening gap between loss trends and rate increases.
Read the Travelers Insurance Article: https://www.travelers.com/resources/business-topics/insuring/factors-affect-insurance-costs-commercial-property