Three reasons your homeowners insurance premium is increasing

And the best ways to help control costs

Any recent trip to the grocery store or gas station will prove it—costs are on the rise, and your home insurance premium is no exception. Kevin Hogan, Chief Operating Officer & Chief Underwriting Officer of Berkley One, a Berkley Company, notes:

“You’re bound to hear about inflation as a reason why costs are going up for anything now—and when it comes to insurance, it largely comes down to the cost to settle claims.”

He also mentions, for example, the high costs of materials to rebuild homes after a covered loss, or the time homeowners would need to spend at a hotel or apartment in the process are large factors. Add to the mix an increasing frequency of severe weather-related events, and you’re looking at the perfect storm for rising premiums. And while many of these factors are difficult to control or predict, there are still steps the homeowner can take to help mitigate the risks and repercussions of higher monthly costs.

“While it is impossible to prevent every loss, every homeowner can take steps to manage their property pro-actively and reduce the likelihood of losses to their home. One of the most effective ways to do so is to protect your home by keeping up on maintenance,” says Hogan, who lists examples such as scheduling roof maintenance, maintaining gutters and sump pumps, or installing a home generator. “As homes age, it’s important to maintain this upkeep,” according to Hogan, noting the relevance of projects like roof repairs and replacements, electrical work, and taking steps to ward off water damage—a leading cause of home claims.

Higher deductibles also help. “Homeowners who think of insurance as providing protection for very large, or catastrophic, losses can see significant premium savings when they choose higher deductibles. We’re seeing more and more people choosing higher deductibles. It’s not unusual to see a homeowner opt for a deductible of $10,000 or more, and in those cases, the homeowner is choosing to assume a bit more of the risk themselves and in return are rewarded with lower premiums which helps them manage their insurance costs and claim frequency,” he says.

And finally, Hogan notes, remember your agent.

“Your agent is an expert resource—ask them to review your coverages to make sure you have the protection you need. And then ask them whether or not you are maximizing available credits for home improvements that reduce your exposure to losses. The more proactive you can be, the better—and your agent is there to help.”

In addition to staying on the offense, it’s important to stay informed. Here are three of the biggest reasons your insurance premium could be increasing now, from inflation to exposure change.

#1 – Inflation


The increase in consumer costs is taking its toll universally and across the board, from food and fuel to appliances and insurance. Within the past five years, inflation has caused U.S. homeowners insurers to pay more than other countries in home losses—with the U.S. experiencing the highest cumulative inflation rate—20.7%—as compared to those in the U.K. (17.7%), Canada (17%), or Korea (11.9%)1.

As the cost to reconstruct homes increases with inflation, the amount of insurance coverage needs to increase accordingly. “Part of a homeowner’s insurance premium is based on the amount needed to reconstruct the property being insured – so as those costs increase, homeowners will see a corresponding increase in premiums,” says Hogan.

Hogan notes the impact of inflation on other coverages provided in a homeowner policy. “Additional living expenses (the costs associated with having to move out of your home following a covered loss) includes coverage for temporary housing if you need to move out due to a severe loss. And the increasing costs for renting a residence is an example of how claim costs are increasing,” he says.


#2 – Frequency of Severe Weather-Related Events


The data says that the frequency of severe, weather-related events (such as tornadoes, hurricanes, wildfire, hail, straight-line wind, freezing, and flooding) is on the rise—and as the frequency of such incidents rises, so does the cost of an insurance policy that responds to such events. According to the NOAA National Centers for Environmental Information (NCEI), from 1980 to 2022, there were an average of eight natural disasters per year that caused $1 billion in damage2.

In the last five years, there have been eighteen $1 billion events, and in 2023 alone (as of June), there have already been nine severe weather events with damage exceeding $1 billion.2 And the annual cycle for hurricanes, historically the costliest catastrophe, has only just begun.While hurricanes and wildfires get a lot of press when they hit, they aren’t the only culprits.

“People moving into wildland-urban interface zones and building more houses on the coast contribute to the increase in the size and number of losses attributable to an event, but weather catastrophes take a toll on the central U.S. as well. From Texas to Colorado and across the Great Plains and southeast, severe convective storms – tornadoes, hail, and thunderstorms – are taking a significant toll and are playing a role in premium costs.”

#3 – Cost of Reinsurance


Due to historical loss experience, the cost of reinsurance—the insurance that insurance companies buy—has been increasing. “A lot of factors have contributed to this, including inflation and catastrophes—and in light of this, fewer reinsurance companies are offering this protection to the primary insurance carriers,” notes Hogan. “The market has shrunk, and costs have risen for the primary markets —and, therefore, for the consumer.”

Berkley One is a Berkley Company.