2022 outlook for home insurance patrons – Forbes Advisor – Forbes
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We were hoping for a return to normal in 2021. And while many of us visit family and friends, travel, and return to the office, the pandemic has had a lasting impact on certain aspects of our lives beyond our physical and mental health.
For example, supply chain disruptions and inflation appear to be nasty Covid side effects that are expected to last at least until early 2022.
If you are a homeowner, you might be wondering how this will affect your bottom line. Learn how current trends are changing the home insurance landscape.
Bottlenecks in the supply chain could affect home insurance claims
There was a serious standstill for home builders in 2021. A perfect storm of pandemic interruptions in the supply chain, labor shortages and inflation caused a 15-year high in construction backlogs. The demand for new homes and renovation projects has resulted in increased costs.
On the surface, it might not mean much to you. Because if you are not planning a new building or a renovation project, you may think that hiccups in the construction business do not affect you.
However, when a region is hit by a disaster such as a hurricane or forest fire, the increased need for repairs often leads to a temporary increase in reconstruction costs. These costs could be compounded by supply chain disruptions in 2022.
All of a sudden, the amount of coverage you bought for your home may be insufficient. If a disaster strikes and you need to rebuild your home, you will be hooked for any amount above your home insurance limit.
"Given supply chain problems, tight material and labor markets, and inflation, it is worth considering buying more protection from home insurance," said Greg Pannhausen, Head of Countrywide Homeowners Product for Farmers Insurance.
Another way to deal with unexpected spikes in construction costs on site is with extended or guaranteed replacement cost coverage, if your insurer offers it. These types of cover give you an extra cushion when construction costs rise.
Inflation can aggravate the pain of exchanging possessions
The annual inflation rate from November 2020 to November 2021 was around 6.8%, according to the US Bureau of Labor Statistics (BLS). But thanks to supply chain problems and production bottlenecks, the cost of some goods has more than doubled.
For example, according to the BLS, the costs for living room, kitchen and dining room furniture rose by around 14% nationwide from November 2020 to November 2021.
Since home insurance covers your belongings, you want to be sure that you have adequate coverage of your personal belongings for the cost of replacements if they are damaged or destroyed:
Make sure your home insurance covers replacement costs. This coverage pays off to replace your damaged items with new items. If you currently have actual cash value insurance, you will only be reimbursed for the depreciated value of the items.
Do a home inventory to determine if your current personal property protection is adequate. Remember, this coverage applies to all of your furniture, clothing, decorations, and random items.
Related: Replacement costs vs. cash value coverage in household insurance
The insurance industry is playing a more active role in combating climate change
The insurance industry will take a closer look at how climate disasters affect their customers. The National Association of Insurance Commissioners (NAIC) and state regulators have released a report on how insurers can better manage climate-related risks, including insurance availability and affordability, and consumer education and outreach.
The Consumer Federation of America, the Center for Economic Justice, the Maryland Consumer Rights Coalition, and the Consumer Federation of California have asked the Federal Insurance Office (FIO) to take a more active leadership role. This would mean moving the insurance industry to a “net zero” emissions target and also increasing protection for policyholders faced with disasters, lower availability of home insurance and higher insurance costs.
The group wrote in a letter to the FIO that insurers are able to reconsider insurance decisions for industries that contribute to climate change, such as coal-fired power plants and oil pipelines.
If your home is at risk of disaster, it's a good idea to reassess your home insurance right away. For example, according to ScienceBrief, a rating of 90 peer-reviewed scientific articles and republished by the National Oceanic Atmospheric Administration (NOAA), man-made climate change is likely to fuel stronger hurricanes. The need for hurricane insurance for homeowners in many areas is greater than ever.
NOAA recently increased the definition of an “average” hurricane season in the Atlantic from 12 to 14 named storms. The 2021 hurricane season ended with 21 named storms, which followed a record-breaking 2020 Atlantic hurricane season with 30 named storms.
Flood insurance is now a must in many areas and is no longer an easy-to-neglect coverage fun.
And the forest fire season is now practically all year round. Climate change is believed to be one of the main drivers of this trend, according to the California Department of Forestry and Fire Protection. Warmer spring and summer temperatures, lower snow cover and earlier snowmelt in spring have led to longer and more intense dry seasons.
California burned more than 3 million acres in 2021. This follows the 2020 wildfire season, considered the worst on record, burning more than 5 million acres in California, Oregon, and Washington.
Homeowners take out forest fire insurance through standard household contents insurance, which covers fire damage caused by forest fires, kitchen fires and other accidents. If you own a home, it is advisable to review your policy to make sure that your current disaster coverage is adequate.