Many people are surprised to learn their home insurance rate will change from year to year. Many times, there will be an increase as we’ve seen in the past few years, and sometimes there will be a decrease. Rates fluctuate, so let’s examine why!
Inflation: Most home insurance policies include an “inflation protection” component within the policy. This is designed to increase the home’s insured value, what it cost to replace the home in the event of a total loss, each year based on the rate of inflation. The average rate of long term inflation in the United States since World War 2 is 3.76%. If the rate of premium increase for a home insurance policy at renewal is between 3% and 5%, that signals to me the rates are stable and not increasing beyond the rate of inflation. If rates are rising at a rate faster than inflation, as they have been for the past five years, then it becomes increasingly important to review our client’s options each year.
Insurance companies didn’t always include an inflation protection component within their home policies. They depended on the agent and their team to review each client’s insurance policies every year to two and adjust them accordingly. The only problem is it didn’t always happen and resulted in many people having a home which was underinsured for a total loss. Inflation protection protects the client from having too little home insurance coverage to replace their home.
Weather: Texas, especially the Dallas / Fort Worth area, has experienced three continuous years of severe hail storms. Insurance companies have paid billions in claims over this timeframe which has resulted in significant rate increases in the zip codes which have been most impacted by hail. As severe weather frequency increases, rates go up, even if you didn’t file a weather-related claim. When the severe weather abates, rates will drop.
Claims: Home insurance is designed to protect the homeowner from financial disaster by moving the risk for a major claim from the homeowner to the insurance company. When claims for water damage, a fire, theft, vandalism, and other non-weather-related events are filed, rates will increase for the homeowner. Being claim free, helps keep rates lower and enhances your ability to move to a carrier with lower rates.
Competitive Pressure: Rates don’t always increase. Sometimes, they do go down. Texas is the second largest home insurance market in the country which means it’s a very competitive marketplace. Some home insurance companies lower rates to increase their market-share and grow their business. When this happens, consumers benefit, if they are willing to evaluate options!
Complacency: Most people I know really don’t enjoy shopping for insurance! They’re inclined to ignore it until they’re surprised it’s changed, and not for the better. Home insurance companies know this so rates tend to rise every year the longer a person remains with that company. That’s why it’s important to review your home and car insurance every two to three years!
One of the advantages of being an independent insurance advisor is I’m able to find the best rate from all my carriers for a client each year! What do you think? Share your comments, questions, and experiences with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!