You haven’t filed a claim. You haven’t built an addition or made any changes to your home. So why did your insurance premiums go up?
With inflation raising the costs of many items, you may assume that’s why your premiums have increased. But that’s only part of the reason you may be paying more for homeowner’s insurance this year.
Construction costs have increased
One of the main reasons that insurance premiums have increased is because construction prices have skyrocketed. Ongoing inflation and labor shortages have driven up the cost of labor and construction materials. When the cost to repair or rebuild a home rises, so does the cost to insure that home and pay for that repair or to rebuild in the case of an insured occurrence, such as a fire.
Recent reports from the U.S. Bureau of Labor Statistics (BLS) suggest that the surges of the past few years are starting to slow—and even improve. Material goods for new residential construction increased 4% in 2022, which saw a 20% jump compared to 2021. Asphalt roofing materials increased 6% over the previous year (vs. 15% in 2021), and prices for lumber and wood decreased by 42%.
Unfortunately, labor shortages continue to present a challenge. The BLS reported 388,000 construction job openings in November 2022.
Living expenses are higher
If your home is damaged and uninhabitable, you’ll have to live somewhere while your home is being repaired. Rents are rising nationwide as well, further adding to the expenses your insurance policy has to cover. As with construction costs, those added expenses result in higher insurance premiums.
Replacement costs have jumped
If something in your home is stolen or damaged, chances are that the cost to replace it has increased as well. (Of course, this only applies if your policy includes replacement cost coverage instead of using actual cost basis, which reimburses you for the current, depreciated value of property.) Many items used in homes, such as major appliances and fixtures, cost significantly more to replace than they did just a few short years ago. Again, higher replacement costs mean higher insurance premiums.
Increase in natural disasters
From wildfires to hurricanes, natural disasters have increasingly been in the news within the past few years. The National Centers for Environmental Information (NCEI) reports that, in 2022, the United States experienced 18 weather/climate disaster events with losses exceeding $1 billion each. The annual average from 1980-2022 is 7.9 events, compared to 17.8 events for the past 5 years (2018-2022). Even if a natural disaster is several states away, the insurance claims from that event will affect insurance premiums across the board.
Insurance is shared risk, and that means that a large payout for a natural disaster will ultimately be reflected in everyone’s premiums.
With homeowners’ insurance premiums increasing, it’s a good idea to work with a knowledgeable broker to evaluate how much coverage you really need and to get pricing from multiple companies.