Why Has My Homeowners Insurance Gone Up So Much?

If you’ve received your homeowner’s insurance bill recently, you might be startled by the increase in premiums. Or you may have heard about insurance companies leaving a state completely. Homeowners across the U.S. are facing the same shock. The rising cost of homeowners insurance is influenced by a mix of complex factors, from economic changes to environmental shifts.

To get an experts input on what’s happening in the homeowners insurance market I attended a Q&A session with Hanna Ogle and Shelby Vigil of Watkins Insurance last week.

Here’s a breakdown of why insurance costs are climbing and why insurance planning is more crucial than ever.

Factors affecting Homeowners Insurance

1. Inflation and Rebuilding Costs

As the economy experiences inflation, the cost of goods and services rises. This includes the materials and labor needed to build or repair homes. With homes appreciating in value and reconstruction costs climbing, insurance companies have had to increase premiums to cover these higher potential payouts.

2. Unpredictable Weather Patterns

Climate change has intensified weather patterns, making severe weather events both more frequent and more unpredictable. This increased risk forces insurance companies to adjust their models, often resulting in higher premiums for homeowners due to a likelier chance a home will be damaged by severe weather.

3. Challenges in the Reinsurance Market

Reinsurance, which is insurance for insurance companies, has seen a decline in investors, particularly following heavy losses in 2022. This decline has strained the financial capacity of primary insurers, compelling them to raise homeowner’s insurance rates to sustain their risk management.

4. Regulatory Constraints

In many states, Departments of Insurance regulate how much insurers can charge for their policies. In cases where these regulatory bodies have not permitted increases that align with rising costs and risks, insurance companies have found themselves under financial pressure. This has led some insurers to withdraw from markets where they feel unable to charge adequate premiums, contributing further to rate increases in the remaining market.

What can you do about rising rates?

As inflation slows and eventually normalizes, this portion of the insurance premium component is expected to return to normal levels. So if you can hold off on switching insurance companies for the next 18 – 24 months, you may see your rates come down.

If you have paid off your mortgage and own your house/property outright, you can “self insure”. With this technique you choose to not be covered by an insurance company but instead “pay yourself” each month or year the same premium amount you’d pay an insurance company. This approach takes discipline to ensure you are saving your “self paid premiums” and keeping the cash for the unlikely event that you may need it.

For those that have a mortgage and are required to have homeowners insurance – you may want to work with an unaffiliated broker. These brokers do not work for any one specific company. They shop around for you with ALL the insurance companies to get the best rates and coverage. Their expertise will help ensure you are getting enough coverage at the right price. They are also able to give advise on home updates or improvements that will help lower your rates.

The Importance of Insurance Planning

What is the role of insurance in the economy and more specifically in your life? It’s to add a layer of protection for you and others. If no one had insurance, think about how costly it would be for everything from car repairs to medical to travel.

This might help put insurance into a little more relatable context: Do you wear your seatbelt when riding in a car? Do you have working smoke detectors in your house? Hopefully you answered YES to both of these. And the likely reason you do both of these is to reduce the risk of death or severe injury. Insurance may not save your life physically like these examples, but it can save your life financially.

Insurance planning is a crucial element of comprehensive financial planning, especially for safeguarding your wealth and assets against unforeseen losses. At CAM Investor Solutions, as fee-only planners, we understand that insurance is not just a safety net but a fundamental aspect of wealth protection. Our commitment to providing unbiased advice aligns with our responsibility to ensure that every facet of your financial plan strengthens your financial security.

Types of Insurance We Review at CAM

• Homeowner’s Insurance
• Auto Insurance
• Umbrella (liability) Insurance
• Health Insurance
• Life Insurance
• Disability Insurance
• Long-term Care Insurance
• E&O Insurance

Insurance Planning at CAM

When evaluating your insurance needs, we consider various potential vulnerabilities that could impact your financial health. Our approach is thorough and tailored; we look at your entire financial picture to determine where you might be exposed to risk. This might include analyzing your current coverage to identify gaps where you might be underinsured, such as insufficient liability coverage on property insurance or a lack of umbrella insurance, which could be crucial in protecting against claims that exceed ordinary coverage limits.

Moreover, as fee-only planners, we are not incentivized by commissions to recommend specific insurance products. This positions us uniquely to advocate for what truly benefits you, not what generates the highest commission. This means that our recommendations are based purely on what will provide you with the best protection and value, ensuring that the insurance coverage you carry complements your overall financial goals and wealth preservation strategies.

We believe that effective insurance planning mitigates risks that could otherwise severely disrupt your financial stability. Whether it’s a natural disaster, a medical emergency, or an unexpected legal issue, having the right insurance in place can be the difference between a recoverable setback and a devastating financial loss.

Disclosure

M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. As a fee-only firm, we do not receive commissions nor sell any insurance products. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. 

This blog has been provided solely for informational purposes and does not represent investment advice. Nor does it provide an opinion regarding fairness of any transaction. It does not constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy.

Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss. Tax planning and investment illustrations are provided for educational purposes and should not be considered tax advice or recommendations. Investors should seek additional advice from their financial advisor or tax professional.