Insurance Premiums Soar: Why?

Home insurance rates have skyrocketed, with premiums jumping 23% since 2023. The average premium in February 2024 is about $141 a month for a home with $250,000 worth of dwelling insurance, representing a 23% increase from the previous year. Several factors are responsible for this surge, including an increase in the number and severity of natural disasters, such as hurricanes, floods, droughts, and wildfires, which have led to a spike in claims. In addition, higher construction costs, supply chain issues, inflation, and labour shortages have contributed to the rise in insurance rates.

Natural disasters

The impact of natural disasters on insurance rates is particularly evident in states prone to hurricanes, flooding, wildfires, and tornadoes. Florida, for instance, has seen a 68% increase in average home insurance prices in just two years due to recent storms, high costs for insurers related to roof litigation, and mounting concern over climate change. Similarly, states like New Mexico, Colorado, and Idaho, which have experienced destructive wildfires, have also seen significant increases in home insurance premiums.

The increase in natural disasters has led to higher claim payouts and financial losses for insurance companies. As a result, many insurers are raising rates to cover these losses and ensure they remain solvent in the face of future climate-related disasters. Additionally, the cost of rebuilding homes after a natural disaster has increased due to higher construction and labor costs, further contributing to higher insurance rates.

To mitigate the impact of natural disasters on insurance rates, some states have implemented specific insurance plans. For example, FAIR (Fair Access to Insurance Requirements) plans are available in certain states as a last resort for homeowners with high risks. Beach plans are similar but are only sold in specific coastal communities along the Atlantic and Gulf coasts.

Inflation

The insurance industry references the Consumer Price Index to measure inflation and makes rate adjustments accordingly. This is a significant reason why property owners find their home insurance increasing year on year, even if nothing has changed on their property. Inflation has led to higher rebuild costs, which means homes require higher dwelling coverage limits to keep up with rising prices.

Labour and construction costs

The pandemic saw many people working from home, and as a result, homeowners began to view their homes in a more critical light. This led to an increase in home improvement projects, with kitchen, home office, and outdoor space renovations being the most popular. According to a survey by Houzz, homeowners increased their spending on home renovation projects by 15% in 2020.

However, as demand increased, supply chain issues caused by business shutdowns and travel restrictions led to shortages of building materials such as lumber, steel, and copper. These shortages resulted in significant price increases, with the cost of a framing job for a Habitat for Humanity house doubling from $6,000 to $12,000.

Labour shortages have also contributed to the rise in construction costs. The construction industry has struggled to find experienced workers, with 89% of survey respondents reporting that they cannot fill hourly craft positions and 86% unable to fill salaried professional positions. This has led to increased labour rates as demand outstrips supply.

The combination of higher material and labour costs has resulted in higher renovation costs for homeowners and higher insurance premiums. For property insurers, this means evaluating the policy limits of their current policyholders and ensuring they have sufficient coverage to rebuild in the event of a disaster.

Overall, the increase in labour and construction costs has been a significant contributor to the rise in home insurance rates, and it is important for homeowners and insurers to consider these higher costs when planning and budgeting.

Supply chain issues

The pandemic has been a key driver of these issues, with supply chains being disrupted since 2020. While the supply chain issues have begun to ease, some material costs, such as PVC pipes, slab doors, asphalt shingles and felt, continue to rise. CoreLogic found that from January 2022 to August 2022, labour costs grew for many fields of expertise, causing companies to pay higher rates for labour.

The impact of these issues is felt when it comes to making insurance claims. For example, there may be a longer wait for specific materials to arrive, or there may be a more limited selection of materials available. This can delay the start of repair work by several months, meaning that those who are insured may have to spend longer in alternative accommodation while waiting for their homes to be repaired.

The increase in the cost of building materials and labour has also contributed to higher home insurance premiums across the board. Home insurance policies are based heavily on dwelling coverage, which pays to rebuild a home if it is damaged. The higher rebuild costs due to inflation and supply chain issues have led to higher dwelling coverage limits, resulting in higher insurance rates.

In addition, supply chain issues have contributed to delays in securing replacement vehicles, particularly for commercial vehicles. This is an issue for commercial vehicle users who rely on their vehicles to run their businesses. As a result, used commercial vehicles are now often sold for more than their original purchase price.

Roof replacement

The roof is an integral part of the structure of your house, protecting it from the elements. It is also a significant investment, with the average cost of replacing a roof being up to $9,194. The cost of a new roof depends on multiple factors, including the size of the roof, the materials used, and your location. A copper roof, for example, can cost up to $80,000.

The lifespan of a roof depends on the materials used. Asphalt shingle roofs, the most common type, have an average lifespan of 15 to 20 years. Other types of roofs may last from 12 to 150 years, depending on the materials.

Home Insurance and Roof Replacement

Home insurance policies typically cover roof replacement if the damage is caused by a covered peril, such as a fire, thunderstorm, hurricane, or tornado. However, insurance companies may not cover the cost of roof replacement if the damage is due to lack of maintenance, general wear and tear, or the age of the roof.

Most insurance policies will not pay to replace or repair a roof that is gradually deteriorating due to neglect or age. Roofs that are over 20 years old often have limited coverage or may not be covered at all. In such cases, the insurance company may offer actual cash value insurance, which only covers a portion of the claim, taking into account the roof's age and condition.

To ensure that your roof replacement claim is approved, it is important to maintain your roof properly and keep records of repairs, inspections, and any other relevant documentation. It is also recommended to notify your insurance company promptly when damage occurs.

Factors Affecting Home Insurance Premiums for Roof Replacement

The age and condition of your roof are important factors in determining your home insurance premium. Older roofs tend to raise premiums, while roofs that are ten years old or less will result in lower premiums. The location of your home and the building materials used will also impact the cost of your premium.

If you replace your roof with stronger and safer materials, you may be rewarded with lower home insurance premiums. Upgrading to impact-resistant shingles, for example, can help limit the number of claims you file and may qualify you for wind mitigation discounts offered by some insurance companies.

Tips for Filing a Roof Replacement Claim

If you need to file a roof replacement claim, there are several steps you should take:

• Contact your insurance company and notify them of the damage.
• Hire a roofing company to make temporary repairs to prevent further damage to your home.
• Gather evidence of your claim, including before-and-after photos of the roof and receipts for any repair work.
• File the insurance claim through your insurance agent, online, or via a mobile app, depending on your insurance company's process.
• Schedule an appointment with an insurance claims adjuster, who will inspect the damage and determine if your claim is approved.
• If your claim is approved, pay your deductible, after which your insurance company will reimburse you for the cost of roof repairs or replacement.

Frequently asked questions