I recently had a client call and complain about the renewal premium for his homeowner’s insurance. He said it was too expensive for something he has never used. He could not understand the premium increase.
He is correct, he has not filed any claims, and yet there were premium increases. There are many reasons for the increase.
One reason is inflation. In normal times the inflation factor can be small. The average increase of Coverage A (Replacement Cost of the Dwelling) is usually 2% to 4% annually. On a $200,000 home, Coverage A limit might increase from $4000 to $8000.
The Covid Pandemic has had a significant effect on insurance premiums. The biggest factor causing this is the cost and availability of labor and materials. The “Covid Effect” is well documented. It is reflected in the price for new homes and the asking price of existing homes. You can look at any realty website and see that the asking price for existing homes has increased up to 30%. This has dramatically increased the “Replacement Cost” of all homes. Using the example of the $200,000 home above, this means the asking price of that home could now be as high as $260,000! This occurred over the past 18 months.
When the Replacement value of a home is calculated, there are several significant factors that are considered and included. The cost of debris removal and disposal is included as well as the cost of materials to rebuild the home in the event of a full or partial loss.
Now consider the terrible tornados that recently struck the Midwest. In addition to the tragic loss of so many lives, the destruction caused billions of dollars in property damage. This will affect premiums nationwide. Already scarce construction materials will become even more scarce due to increased demand and the already short labor supply will become more even severe further driving up prices.
As the cost of claims increase so do the insurance premiums. It is no secret that insurance companies operate on a for profit basis.
As noted, there are many factors for the premium increases. This is a short simplistic explanation of only a few of them. For a deeper explanation call us or visit www.southeasternins.net