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Generally speaking insurance isn’t much of a topic to talk about. This year home insurance has been a topic of conversation among many, many people and all over the internet/Facebook. Unfortunately the marketplace is dictating that nearly every customer is facing some sort of increase and/or reduction in coverage. The potential reduction in coverage some are seeing is generally a forced larger deductible or percentage deductible and/or some sort of limitation on cosmetic damage to roofing or seeing a roof covered on actual cash value instead of replacement cost. Actual cash value factors in depreciation with claims and replacement cost pays for a new product, so having something like a roof covered at replacement cost is desirable as a customer. These issues have driven many to look for alternatives and try to alleviate the increases. Let’s take a deeper dive into two big factors driving this.
First off is the inflationary environment. Historically insurance companies take data from claims paid and work to predict future rates. This data isn’t often accumulated until a year is over so there is always a lag. The industry did a terrible job judging inflation over the last several years and was way behind the 8 ball on adjusting rates, especially early on. Their data didn’t indicate things first hand until years after the problems started and with the regulatory environment many face they can’t push rates up on a hunch. As such they are now working aggressively to get an adequate rate within as short a time frame as possible.
The second major thing is major weather events and home insurance turning into more of a maintenance type policy. Not so much in the Northwoods but in many areas of the country hail specifically has been forcing insurance companies to put new roofs on homes once a decade or so on a fairly routine basis. This compounded with wind damage, hurricanes, and many more serious wildfires has really added to the number and amount of claims paid. Home insurance was never designed to pay for things that are predictable and happen routinely. This is compounded by the fact that personal auto insurance has been an unprofitable line of business across the industry for well over a decade straight. Many customers bundle their auto with their home insurance for discounts, when both lines are doing poorly things can be compounded for the customer.
So what can someone do to deal with this? The first thing is to shop around. Although some companies are not accepting any new business right now many insurance companies still are looking for quality business they believe can be profitable long term. If you have a good customer profile and especially no or minimal claim history you can likely get a decent quote from other carriers to at least compare. Unfortunately nearly all customers are facing increases this time around, even folks that have been with their companies for decades and claim free.
Another thing is to look at increasing deductibles. Many folks still have $500 or $1000 deductibles on their policies. Looking at something in the $2,500 - $10,000 range may offset or eliminate an increase. Unfortunately some folks may be forced into larger deductibles as that will be the only thing offered. Some customers are also facing a percentage deductible (especially for wind/hail) which can greatly impact how much they are responsible for. While a 2% deductible doesn’t seem like much if your home is insured at $400,000 then the deductible on a 2% policy is $8,000 – a major increase for many. My home insurance renewed this spring and it went from about $1,700 to $2,000. I had a $1000 deductible and I had my agent quote a $5000 deductible instead, this brought the premium down within $50 of where it was the year before and was something I could live with so I went that route.
Now more than ever it is really important to keep a good profile as a customer. I strongly recommend using home insurance for things that are catastrophic. If someone starts turning in claims that are smaller and has one or more claims within the last few years it can have a severe impact on their pricing and eligibility with many carriers, especially if these things are non weather related. I look at my home insurance as something I wouldn’t even consider making a claim on unless damages exceeded $10,000.
The good thing is if you have a major event like a house fire or tornado destroy your house home insurance is really a great product. For the most part there aren’t a ton of differences with most carriers in the home insurance world and the products are pretty similar and standardized. I always recommend reading and understanding your own policy but generally speaking home insurance does provide a lot of coverage for your premium dollar (I don’t say this about most insurance products). I do think carrying home insurance, even for those that have their homes paid for, really makes sense. Most of us pay under $200/month for home insurance and some still under $100/month. Home insurance covers so much more than just your house. It also has your stuff (personal property), your outbuildings/detached buildings (10% of your home amount generally), and loss of use (called additional living expenses so you don’t have to move in with your in-laws if you lose your home from a covered cause of loss). By the way many home insurance products have replacement cost on your house as well as contents so as long as you actually replace things there won’t be deductions for depreciation. Additionally there is personal liability included in home insurance products also.
Nobody likes paying more for the same thing. That being said, home insurance is still a good value in my opinion. For somewhere between what a family pays for their cell phones and their internet bill they are protected from losing what is likely their most valuable asset, their possessions, outbuildings, having somewhere to live, and personal liability.
