Many home insurance premiums are rising quicker than inflation – The Philadelphia Inquirer

Ken Hoagland was surprised when he recently increased his monthly mortgage payment.

"I noticed that our mortgage was $ 100 on a $ 1,250 mortgage," he said. “So I looked at this. First I called the mortgage company and they said, 'It costs a lot more to insure your home.' "

Across the country, homeowners renewing their insurance policies are finding that rising material costs, supply chain disruptions, and climate change are driving premiums up by an average of 4% to an average annual premium of $ 1,398, according to the Insurance Information Institute called a non-profit organization Triple-I that provides information about the insurance industry. Triple-I uses data from Standard & Poor’s Global Market Intelligence for its analysis.

Since 2017, premium rates have risen by an average of 11.4%, rising faster than inflation – and insurance experts expect rates to remain high.

"From what I know about homeowner risk, I was expecting higher numbers," said Dale Porfilio, chief insurance officer at Triple-I. "To be honest, I would say they should go further up."

Most mortgage lenders require borrowers to take out home insurance. According to a recent analysis by, homeowners spend an average of 1.91% of their household income on home insurance.

The cost of home insurance depends on several factors. Location often drives costs up, especially if the home is in an area prone to natural disasters. Some areas have higher prices because it costs more to rebuild a house there. How resilient a house is to natural disasters – for example, if it was built to cope with an earthquake – can affect prices.

When Hoagland spoke to his insurance agent, he learned that the increase in his insurance premium was linked to rising timber prices, a serious shortage of skilled workers and inflation. All of these factors caused the replacement cost of his home to go up. The insurance company calculated the cost of rebuilding his 1871 Tuscan-style home in Berkley Springs, W.Va., which he bought for $ 265,000 less than two years ago, at $ 625,000.

"My first instinct was that this was some kind of scam with an insurance company," said Hoagland. "I called all the top-rated insurance companies, five or six, and said, 'I'm not sure I want replacement value coverage.' Each and every one of them said, 'No. , this is the only insurance we offer. & # 39; "

Most homeowners want their home back in the condition it was in before it was destroyed by the event, which is why the replacement cost – the cost of rebuilding the home as it was – often differs from the value of the home. The replacement cost also does not take into account the value of the land. In some cases, the replacement cost of a home is less than the home's value because the land value in this area is high.

"We offer what is known as replacement cost coverage," said Karen Collins, vice president of retail for the American Property and Casualty Insurance Association, the largest insurance association. "We want to rebuild to replace what you had before. We're trying to gauge this using an inflation factor. But when you have such an unusual inflation rate, these automated processes can't always keep up."

Rising costs for raw materials, especially wood, and interruptions in the supply chain add to the profit.

When the pandemic broke out, timber producers feared a repetition of the Great Recession. You cut production and unload stocks. But demand soared and surprised them. The price of lumber rose to $ 1,500 per thousand feet of board in March, a 400% increase over the previous year.

"Right now, timber prices are around $ 900 per thousand board feet," said Robert Dietz, chief economist for the National Association of Home Builders.

The bottleneck in the supply chain has also made refrigerators and stoves more expensive and scarce.

"The construction takes longer and costs more," said Dietz. "Using the inflation [producer price index] data, we are building a basket of goods that is linked to housing, and currently these prices are up about 19% year-on-year."

Climate change is also contributing to higher rates. The year began with a devastating Texas winter frost that resulted in the state's largest non-hurricane weather damage event. Hurricane Ida, which hit in late summer, is projected to be one of the five costliest hurricanes in US history. It's too early to calculate the casualties from the tornadoes that struck eight states in early December.

Porfilio said insured damage from tornadoes, hurricanes, severe storms, forest fires and other natural disasters reached $ 82 billion this year, up to more than $ 400 billion from 2017 to now.

"Climate risk continues to put pressure on all weather-related factors," said Porfilio. "We see more severe hurricanes, more severe forest fires, and the science is not that clear about tornado events as to whether or not they change in frequency. But what we definitely know is that the severity is increasing."

When a natural disaster affects a large area, the demand for materials and labor drives prices down.

"What usually happens when you have an event that destroys or badly damages hundreds of thousands in a subway area is that building material prices in those markets go up for about six, sometimes up to nine months," said Dietz. "You get an increased labor shortage on the market and the adjacent markets because a lot of labor and construction know-how flow into the conversion area for repair work."

Regardless of whether the increases are small or large, there are ways to save money on home insurance premiums. Hoagland decided to increase his deductible from $ 1,000 to $ 2,000, which reduced his home insurance by about $ 500 a year.

On its website, Triple-I lists 12 ways homeowners can cut the cost of their premiums, including shopping, bundling home and auto insurance, making the home disaster resilient, and improving the security of the home.

Although 2021 could be an exceptional year for natural disasters and soaring inflation, it could still take some time for home insurance premiums to moderate.

"The reality is that we should all expect them to go up as costs generally go up and all of our insurance policies reflect cost," Porfilio said. “So it's a matter of relative magnitude. I believe and we have a lot of data to show that interest rates should rise faster than they have been up to now. I think there is still some catching up to do. "

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