Dwelling insurance sees large value hikes – Forbes

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It's been a tough year for homeowners. An ice storm in the Plains left millions with burst water pipes and without electricity. California is grappling with a drought that will only add more tinder to its already epic forest fires. Hurricane Ida set a new record for hurricanes by cutting a swath inland from Louisiana to New York City and drowning people in their basements.

These are not isolated events. The National Oceanic and Atmospheric Administration says 18 weather disasters, each costing at least $ 1 billion each, struck the United States this year.

Now the curtain is rising on the second act. Insurers assume that because of these disasters and the ongoing Covid curse, the damage they are currently suffering will turn into insurance premium increases for homeowners in the next year and in the future.

"A perfect storm is brewing in the property and casualty insurance market," said Jeffrey Brewer, who represents the American Property Casualty Insurance Association (APCIA), a trading group for insurers.

Unsurpassed and record breaking

The definition of “a perfect storm” is the coincidence of disasters, in this case both natural and man-made. "Since the beginning of the 2020 (hurricane) season, an unmatched 50 named storms have formed over the warming Atlantic waters, with a record-breaking 18 hitting the lower 48 states," says The Washington Post. "Some areas … have been hit more than once and have yet to recover."

The reason they can't recover is because of the second half of the perfect storm – what risk management analysts like Rajkiran Vojjala of RMS call "Post-Event Loss Amplification". That means it costs a lot more to fix homes damaged by hurricanes, ice storms, floods, and other disasters – if you can find someone to fix them.

This is evident to anyone who is frustrated with shopping for gadgets, electronics, furniture, groceries, or even while eating in a restaurant. Reasons include supply and labor shortages and inflation.

Covid is a "cause"

Covid is one of the "root causes" of the problems, but an APCIA report goes deeper:

  • Home repairs now cost more – a lot more. The 2008 recession hit the housing industry badly. Large contractors still can't keep up with demand, especially at a time when people have moved to the suburbs to escape Covid and urban crime. The new building competes for workers and materials with those who have to rebuild their damaged houses.
  • The construction costs explode. Sometime last summer, timber prices had risen 400% year over year. While it goes down a bit, other materials like steel, copper, and cement are still tall and hard to find. There is a persistent global shortage of semiconductor chips that are part of every modern home today.
  • The product supply chain is damaged, with residues in major ports, coupled with accidents like the recent Huntington Beach, California oil spill. The freight rates have "increased".

The good news

Is there any good news? Yes sir. More and more insurers have introduced the Loss Adjustment Expense (LAE), which enables consumers to submit claims “self-made” instead of having thousands of damaged homes personally assessed by an insurance expert.

This means that policyholders can in many cases send their home insurance with pictures and a description of the damage while they are on the move. This information, supported by satellite and drone images, often enables the insurer to process the claim immediately and at least reimburse the additional cost of living.

Not only does this help the homeowner, but it could also cut up to 10% in claims costs for the insurer, says Tom Larson, risk analyst at CoreLogic, a company that predicts insurance claims.

Not out of the woods yet

Insurance increases seem as inevitable as filing your property tax bill. So do policyholders have to expect a huge increase in their home insurance bills in 2022?

Mark Friedlander of the Insurance Information Institute, a trading group for the property-casualty industry, warns against getting too gloomy. He says that the financial blow, if there is one, is uneven, depending on the state and city, sometimes down to the zip code.

If you are in a hurricane-prone area, you will have to wait and see how your rates change at the time of renewal. "It is premature to speculate on how Hurricane Ida and other tropical cyclones could affect property prices in 2021," he says.

“It's too early to say we're out of the woods,” says CoreLogic's Larson of home insurance rates. "But it's not nearly as bad as the stories that came out in July."

The increase in home insurance also depends on the state insurance regulators, who in most cases decide from insurer to insurer how much tariffs to increase, especially if they charge a lot. Fire-ridden California is a case in point. A recent article in the Insurance Journal found that tariffs have not kept pace with increasingly expensive homeowner claims. However, this may change if the state allows insurers to introduce risk models that determine where fires are most likely to occur and then levy appropriate fees.

Find the best tenant insurance of 2021

In any case, it is a good idea to check the details of your home insurance renewal before you unsubscribe. Insurers can offer the same price on the surface, but include a "hurricane deductible" or other feature that limits the amount you can claim back. You can find ways to "harden" or even raise your home to minimize damage from the next storm.

And if you get a sticker shock from the notification of your home contents insurance renewal, remember: you can always poke around.

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