The cost of insuring a home is on the rise, forcing Americans to make tough decisions about whether to cut back on coverage or make big changes to save their wallets.
The nationwide average annual premium for homeowners insurance is $1,398 today, as estimated by trade group Insurance Information Institute. The group says that from 2017 to 2020, premium rates were up 11.4% on average. That is higher than the nation’s 7.9% inflation rate during those years.Premiums have further increased this year with an average rate increase in the third quarter of 6.6%, up from 4.8% in the second quarter, according to MarketScout, a firm that monitors insurance rates.
The cost was up as much as 25% in parts of California and Florida, MarketScout says, and $20-million-plus homes with high wildfire exposure faced even higher increases.
The increase in home-insurance premiums is largely driven by many of the same factors that are putting other parts of Americans’ budgets under stress. Higher prices of building materials and other supply-chain disruptions, for example, have driven up repair and rebuilding costs for insurers.
Home insurers face other serious issues as well.Insured damage in the U.S. from hurricanes, severe storms, wildfires and other catastrophes has tallied more than $370 billion in 2020 dollars since 2017, according to estimates by risk modelers and industry executives. Insurers are filing rate increases reflecting the increased volume of disaster claims they have been paying.
“I think a lot of people are going to feel increasingly stressed,” said Kevin Mahoney, a certified financial planner and founder and chief executive of Illumint, a financial advisory firm for young couples. “Let’s take a family that was already starting to feel the impacts of inflation in one way or another, and then they also fall into this category of people who are going to see their insurance premiums rise.
”Michael Klein, president of personal insurance at big insurer Travelers Cos., told analysts this week that home-insurance costs had run above the company’s expectations in the third quarter due to “a combination of labor and materials price increases.
”The company will “continue to seek price increases in response,” he said.Travelers is the one of the first property insurers to report earnings each quarter, and its results are watched closely as a bellwether for others. Allstate Corp. flagged the inflation issue in its second-quarter earnings call back in August, with a senior executive saying that repair-cost increases were “hitting the homeowners’ side hard.” Allstate posts third-quarter results Nov. 3.
The rising cost of lumber is one factor fueling home-insurance rate increases. Photo: Joe Raedle/Getty ImagesLumber prices have been particularly volatile this year and are up 42% since September 2017. That is one of the most relevant benchmarks for home insurers’ repair costs, said Dale Porfilio, chief insurance officer at the Insurance Information Institute, known as Triple-I.
National averages don’t reflect the larger pain felt in the riskiest locations.States where some homeowners got the steepest increases over the past 21 months include California, Colorado, Florida and Louisiana, where hurricanes and wildfires have struck, according to an analysis by the Triple-I for The Wall Street Journal, using data from S&P Global Market Intelligence.
Regulators approved increases for some policyholders in those states averaging above 9% a year.In addition, the government’s National Flood Insurance Program on Oct. 1 began to roll out a revamped pricing method for the policies that many homeowners rely on for flood coverage.
It will decrease rates for about a quarter of the program’s policyholders but some homeowners face large increases.