By John Bouhall, CPCU
Learn how your homeowner’s insurance premium is affected by big realities.
Read three key factors impacting your homeowner’s insurance premium.
The current and foreseeable trend in the homeowner’s insurance market is rising premiums. Three main factors are driving this upward trend, which is and will continue to affect the average price of homeowner’s insurance. While some homeowner insureds may consider individual options to reduce premium increases, economic and industry-related realities are controlling the market. Let’s look at what is happening and how these factors directly affect you, the homeowner insured.
The prices of goods and services that we all depend on are increasing. The pandemic has caused both widespread labor shortages and extreme supply chain disruptions. The ripple effect is consequential, all the way down to the average price for an individual homeowner’s insurance policy. Lack of workers has resulted in slower production. It costs more to convert trees into lumber, a staple in the repair and replacement of damaged property covered by homeowner’s insurance. Labor shortages in the transportation industry (shipping, trucking, rail) and materials packaging industry means inventory levels of building and repair materials are low or out-of-stock. Across the board, the cost to insurance companies to make repairs or replacements for covered homeowner’s insurance claims is rising.
2. Actual Losses.
One of the factors used by insurance companies to determine rates is actual losses. While Ohio is not a state with catastrophic exposure to hurricanes and earthquakes, it ranked 24th in 2020 tornado losses among the 50 U.S. states, according to Insurance Information Institute. Because of their frequency, tornados account for a major share of catastrophic property losses.Wind and hail events are increasing in frequency, and the threat of hail damage has broadened to include the Midwest, including Ohio. The National Oceanic Atmospheric Administration (NOAA) ranked Ohio 15th for U.S. states with the most major hail events in 2019.How do these events and statistics relate to you as a homeowner insured? Practically speaking, homeowner’s insurance is a requirement for homeowners who have a mortgage; a financial safety net for many accidental and unexpected losses; a form of peace of mind. Technically speaking, homeowner’s insurance is a defined transfer of risk from the homeowner to the insurance company. However, when homeowner’s insurance companies are continually paying out more dollars for covered, actual losses, rate and premium increases follow.
3. Unanticipated, Catastrophic Losses.
For decades, the insurance industry has utilized some level of predictive analytics to forecast anticipated losses. In the last few years though, predictive models have hit a wall of unprecedented surprise. Consider four recent huge, disruptive, and surprise loss events in the U.S.:
#1 Western Kentucky tornado in December 2021
#2 Disastrous wildfires in the western U.S. in 2021
#3 Midwest Derecho in August 2020
#4 Texas freeze in February 2021
Insurance companies are still in the process of paying out covered losses resulting from the above four events. Many insurance companies, including homeowner’s insurance companies, operate in multiple states. So, while the losses themselves were not in Ohio, they affect insurance companies operating in Ohio, as well as the entire insurance industry. The point is whatever companies are paying claims resulting from these losses have taken large, unexpected hits. Financially healthy companies are capable of recovering from a few surprises, but very few, if any, can sustain ongoing, unanticipated claim payments, year after year. Rising rates and premiums are an initial, go-to response to cope with unpredictable surprise.
Your Trusted Choice Independent Insurance Agent at Richey-Barrett Insurance is the key to quality homeowner’s insurance coverage. Call today to review your policy and discuss options which may lower individual premium increases.