Why Covid means larger home insurance prices – Forbes

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Anna and Luke have a tough time building a deck for their Barnegat, New Jersey home. Some contractors don't call back calls, while others have "take it or leave it" pricing when they call back. In the meantime, material prices – especially for construction timber and cement – are rising in the double-digit range. The couple have finally found a builder but have to wait at home for workers who show up sporadically, stay a few hours, and then move on to another job.

Most of their problems stem from the Covid pandemic, which is soon entering its third year. Not only is it suffocating the supply chain and contributing to a lack of trained labor, it is also creating additional demand for new construction from those looking to remodel, remodel, or in some cases buy a new home, which they believe is a safer place.

The aftermath of Covid is also adding to the cost of insuring homes – in some cases more than the wave of inflation that is now sweeping the country. In California, Florida, and Louisiana, insurance premiums rose an average of 20 to 30% over the past year, according to the Insurance Information Institute. The inflation rate is currently around 6%.

Despite the rise in home insurance rates, many in the industry consider the Covid crisis to be manageable. "The effects of Covid-19 premium insurance will eventually subside," says Bob Hertel, who is responsible for product development at Acuity Insurance. "The material and labor shortages are likely to catch up with demand and these trends are already emerging."

While he admits that this is accompanied by even more inflation, "many economists believe that high inflation trends are temporary and will return to normal in two years".

And the National Association of Realtors (NAR) chief economist Larry Yun predicted that house prices, which rose an average of 12% in 2020 and 2021, could normalize in 2022.

Omicron contributes to financial problems

Covid is showing no signs of subsiding. Instead, it generates new forms of itself, like the Omicron variant, which shocked the stock market and broke it by 900 points the day after Thanksgiving – the biggest single trading day loss of the year. Another scary factor: many countries have closed their borders with other nations, which is likely to prolong the supply chain shortage.

While President Biden says Omicron is "not a reason to panic," the World Health Organization has so far said its risk is "very high" and could lead to an increase with "serious consequences". In a testimony to Congress on the last day of November, Federal Reserve Chairman Jerome Powell reiterated familiar threats that Omicron could "aggravate supply chain disruptions" and "slow progress in the labor market."

Although 18 million jobs have been created since the U.S. first lockdown in 2021, the country is still grappling with a labor shortage.

Ultimately, a shortage of skilled workers and higher material costs are a burden for home insurance buyers. "Home insurance is not tied to the market value of a home, it is based on the cost of rebuilding," says Jeff Brewer of the American Property Casualty Insurance Association. This means that not only are premiums rising – already $ 1,400 a year on average – but some homeowners may also be unaware that they are underinsured.

The coverage limit for "apartments" specified in your home contents insurance is the maximum amount that your insurer will pay for the reconstruction of your home. If your home coverage limit doesn't reflect current labor and material costs – and you experience a disaster like a house fire – who needs to make up for the shortfall when insurance isn't enough? Right, the burden rests with the homeowner.

Billion dollar disasters

While Covid isn't the only problem, it adds to the other problems insurers face. Many US-based insurers continue to avoid the label "global warming" because of its political connotations, but are aware that it exists. "This year we're seeing more expensive catastrophes in the US, including 18 weather disasters with losses of more than $ 1 billion each," said Friedlander of the Insurance Information Institute. Regardless of how you define weather changes, this "increased risk" is likely to persist, insurers say.

Both Covid and the influx of bad weather have made insurers more concerned about their bottom line – profits or lack of them. The big property and casualty insurers will survive, but the return on their net worth is only about half that of any Fortune 500 company, according to Acuity's Hertel.

And for smaller household insurance, especially those in storm trails and states ravaged by Covid, the outlook is bleak. In November, one of the largest insurers in the Southeast, FedNet Insurance, announced that it would not renew its Louisiana and Texas home insurance policies in 2022 due to insurance claims caused by severe storms. And two other insurers in Louisiana, Access Home Insurance and State National Fire Insurance, were recently placed under bankruptcy administration.

Friedlander adds that in his home state of Florida only three of the 52 local insurers have made profits.

Adaptation to the new normal

What if Covid continues along with dire weather events like Hurricane Ida, which crossed the country from Louisiana to New York City in 2021, causing 95 deaths and more than $ 65 billion in damage in the US?

The certainty: the premiums for home contents insurance will probably rise even if the amount insured remains the same. But are you also underinsured? Ask your home insurer to reevaluate the cost of rebuilding your home and compare that cost to your current coverage limit.

If you are currently underinsured, consider the following options:

  • Stay with the current insurance value of your house and take advantage of your opportunitieseven if it doesn't reflect the inflated cost of rebuilding your home. You also likely have a deductible that would reduce your compensation from an insurance claim.
  • Increase your home coverage limit and compensate a little for the additional costs by increasing your deductible. In the end, even more costs are passed on to you in the event of major damage.
  • Update your home contents insurance to "extended replacement costs", if your household insurance offers this function. When your home coverage is insufficient, “extended replacement cost” coverage kicks in to add more money to rebuild. Some companies limit this to an additional 25%, and in areas of widespread destruction like Louisiana, that may still not be enough. Companies like Chubb, Erie, and Farmers offer this.
  • Upgrade to "guaranteed replacement costs" if your home insurance offers this. This will ensure that the insurer will take care of rebuilding your home regardless of the cost. In the event of large-scale disasters, when manpower and material are in great demand, this type of coverage protects you from outrageous cost increases. Companies like Auto-Owners, Acuity, AIG and The Hanover offer this.

While nobody is happy about another higher bill these days, the right household insurance cover pays off in the event of a disaster.

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