In June 2021, the following question was asked, “Why is my homeowners premium going up?” There are many issues creating the premium increases. Since Independent Insurance Counselors is located near the coast, a large portion of our homeowners insurance clients are located in tier one. That means their homes are located in a county like Brazoria or Galveston County that borders the Gulf of Mexico. As a result, the windstorm peril greatly affects the insurance premium for homes in first and also second-tier counties like Harris and Fort Bend.
So let’s start with the windstorm peril. The majority of insurance companies buy insurance to protect themselves from catastrophic losses. It’s called reinsurance, and reinsurance is a major expense to the insurance companies. Since the reinsurance cost is passed on to the consumer, the reinsurance cost is a major factor regarding your homeowners premium rate.
Now let’s look at the hurricane history for the United States over the past 10 years. The first five years, from 2011 through 2015, we had an average of two major hurricanes per year. The loss history was low. As a result, the cost of reinsurance became very cheap, and your homeowners premium should have dropped a few years ago. Unfortunately, the next five years, we were not as lucky. 2017 was the most costly property damage hurricane season ever. And not to be outdone, 2020 set a record with 30 named storms, including 13 hurricanes, with 12 of the hurricanes making landfall.
Think about it. Louisiana was hit by five hurricanes in 2020. While the entire East and Gulf Coast only average two major storms annually from 2011 through 2015. The catastrophic losses went way up, and the reinsurance rates and your homeowners rates followed. The bottom line is the homeowners product is not as profitable to the insurance companies as it was five years ago. And with the recent freeze, 2021 is not looking very profitable to the carriers either.
Another big factor is COVID-19. All of the shutdowns have created a shortage of construction supplies. You used to be able to get a sheet of OSB for $7. I bought a sheet in March. It was 37 bucks. The point is the cost of the building materials has caused the replacement cost of your home to go higher.
For instance, our office was working on a commercial account that had a small building. The renewal was in four months. Prior to quoting the insurance, we ran a replacement cost estimator. The client liked our proposal but wanted to wait until their renewal date for us to bind the new coverage. So close to the renewal date, another replacement cost estimator was done. The replacement value had gone up over 6% in only four months. As a result, if in a year, your insured value goes up, let’s say 15%, you should expect your premium to go up 15% too.
So if you’re expiring policy is $2,000, and your insured value goes up 15%, a $300 minimum increase should be expected on your renewal to adjust for the increased replacement cost. Fortunately, there are things that you can do to stabilize your premium and weather this storm. And if you need assistance, contact us at your convenience and take care.
Call Independent Insurance Counselors in Alvin TX at (281) 331-3131
