Why Are My Homeowners Insurance Premiums Increasing? Did your home insurance rate increase at your last renewal? If it did, you’re not alone. Many people are seeing their home insurance premiums go up. Rate increases can be frustrating. The goal of this article is to shed light on the complex factors contributing to the rising costs of protecting your home.Home Insurance Rate Increases: A Story of Climate and WeatherThe United States has seen an increasing number of catastrophic weather and climate events. Many made headlines. Wildfires wiping out towns in California and Hawaii. Excessive rain causing flooding across the plains and along the coastlines. Long-track tornadoes and derechos plowing across the middle of America. Hurricanes like Laura, Ida, and Ian, bringing devastation to coastal communities. But those headline-making events don’t tell the whole story. We’ve also seen increasing smaller, but costly, weather events, like golf ball size hail in Denver or a night of severe weather in Ohio. These smaller storms really add up. In fact, according to Climate.gov, the U.S. had 28 separate weather and climate disasters in 2023 that cost more than $1 billion—that’s the highest ever. Is 2023 an anomaly? Not really. The National Oceanic and Atmospheric Administration (NOAA) has stated that from 1980 to 2023, the average number of billion-dollar weather/climate disasters is 8.5. In the past five years, however, the annual average is more than double that at 20.4. Experts expect the trend of costly catastrophes to continue. Increased severe weather and climate events lead to more claims and higher claim payouts for insurance companies. Adjusting rates to account for future predicted losses is needed to ensure they can pay the claims when policyholders suffer covered losses. That translates to higher prices for home insurance. What else is affecting my home insurance rates? Of course, other factors also play a role in home insurance rates, and they’re often inter-related. Let’s take a look at other reasons why your home insurance premium may be going up.Costs to Rebuild — Inflation and Labor The costs of construction materials, like lumber and steel, have spiked due to lingering supply chain issues and general inflation. What’s more, labor shortages have been affecting the construction industry for several years. Skilled trades people, such as carpenters and plumbers are harder to find, and their wages have increased. This adds to the costs of repairing and rebuilding homes directly and indirectly. Labor costs more, and worker shortages mean delays in starting construction, especially when many disaster victims are vying for a limited supply of contractors and workers. Building supplies in the affected area are also depleted. This contributes to time delays and demand-surge pricing during disaster recoveries. Longer construction timelines also lead to higher insurance payouts for additional living expenses, such as hotel stays and food, while a home is uninhabitable.Home ValuationWhen you purchase homeowners insurance, your dwelling coverage is based on your home’s rebuild valuation. This is different from your home’s market value, which is the estimated price if you sold it. For instance, while your home's market value is affected by its location and recent sales in the area, the rebuild valuation focuses solely on the cost of materials and labor required to restore your home to its former state after a loss. If your home has custom cabinets or a finished basement, that will factor into the rebuilding cost. While rebuilding costs don’t include the actual land value, like market value would, clearing the land is taken into account. If a tornado demolishes your home, clearing the site may involve taking care of tangled power lines, removing downed trees, and clearing the site of what’s left of your home while accounting for any existing infrastructure and nearby properties. Plus, when a home is rebuilt, it needs to be built to current building codes — some of which may not have been in place when the home was first built. These higher standards make for safer or more environmentally friendly homes, but they often cost more. Your insurance company uses all this information to determine the property valuation. But I Haven’t Had Any Claims. Why Is My Rate Increasing? Sometimes people equate rates to their individual experience and feel like they shouldn’t have a rate increase if they haven’t had a claim. But the whole premise of insurance is that it’s a shared risk. While insurers do use individual data, such as the type of home you have and previous claims, those individual factors are built on a foundation of overall risk predicted for your state. This is also why home insurance in general is more expensive in Florida than in Wisconsin — there’s more risk of a home being affected by a loss in Florida than in Wisconsin. Simply put, when an insurer sets base insurance rates in a state, they look at all the claims they expect to have in that state. Individual factors are layered on top of the base rate for a state to determine your premium. What You Can Do to Reduce Your Home Insurance RatesEven though you don’t have control over weather and climate, you do have some control over other factors. Start by taking a close look at your policy, like your deductibles and available discounts. Then take a wider view and consider other actions that can affect your home insurance rate. Some changes could have an immediate effect on your premium, while others can help ensure you’re getting the best rate over time. Raise your DeductibleYour deductible is the amount you pay for a covered loss before your insurance kicks in. Raising your deductible will help lower your premium. If you can afford to absorb those initial costs, choosing a higher deductible will help you reduce your premium. Look for DiscountsMany insurance companies offer discounts that can help reduce your premium. Ask about discounts for bundling home and auto, installing security systems, or buying a new home. See what discounts you could be eligible for at CONNECT.Maintain Good CreditInsurers sometimes use a credit-based insurance score as a predictor of future claims — a lower insurance score indicates a greater likelihood that you’ll file a claim. Good financial practices that improve your credit history, such as making payments on time and lowering credit card debt, may help ensure you’re getting the best rate for your policy. Avoid Claims Are you doing everything you can to help avoid a claim? You can take action to make your home resilient. This may mean choosing wind-resistant roofing materials, stronger garage doors, or adhering to installation practices proven to strengthen structures. Some states may offer incentives, like grants, tax breaks, or insurance discounts, if you make certain upgrades to your home. Experts also recommend regular maintenance, like cleaning gutters and downspouts every season or as needed, and keeping a defensible space to protect your home from wildfires. A defensible space provides a buffer between your home and potential fires in adjacent open spaces or wildland areas comprised of grasses, shrubs, and trees. This buffer is needed to slow or stop the progression of a wildfire. Having a burglar alarm or a sprinkler system can also help reduce the likelihood that you’ll have a claim. If you’re buying a new home, you can choose an area out of a flood plain and near a fire hydrant. You can avoid liability risks, like a trampoline or swimming pool, or reduce them by fixing cracked sidewalks or making other safety upgrades. Additionally, you can avoid filing claims for losses you can afford to pay out of pocket. So instead of filing a claim to repair a fence damaged in a storm, you could repair it yourself or hire someone without filing a claim. Some argue that insurance is supposed to cover losses like that. But insurers have been slicing and dicing the data from their loss history for a long time. The data tells them that anyone who files a claim is more likely to file another one. They could account for that predicted increased risk with an increase in premium as soon as your next renewal. And if you were receiving a discount for having a spotless record, they could remove that, too. Make Sure You Have Enough InsuranceIt can be tempting to try to reduce rates by reducing your Dwelling coverage or by not telling your insurance company after you’ve completed a home renovation. But that could leave you with crushing out-of-pocket costs if disaster strikes. Don’t forget that some improvements, such as putting on a new roof, might even lower your rate. Instead, experts recommend that you complete an insurance review on a yearly basis (or at least after making renovations) and adjust your coverage as needed to make sure it still meets your needs. Don’t forget to look at any scheduled personal property or other endorsements.Also consider your risk for hazards that are not covered by a standard home policy. Perhaps you need separate flood insurance or an earthquake policy. If you’re shopping for insurance, consider the differences between the coverages, limitations and exclusions of different companies. Try to compare apples to apples as much as possible. Insurance Rates Will Keep ChangingThe days of keeping the same home insurance rate year after year are mostly gone. Insurance companies evaluate their rates regularly to stay on top of loss trends. So don’t be surprised if your rate changes after your next renewal, even if you’ve changed insurance companies. In the end, home insurance rates are increasing because risks to your home are increasing. While insurance rates are subject to change, being informed about the factors that influence them puts you in a better position to make decisions that protect your home — and your finances.