Posted on 06/21/2013 7:56:08 PM PDT by NaturalBornConservative
Caveat Emptor
- By: Larry Walker, II -
Have you checked your homeowner’s insurance policy lately?
I’ve been with the same insurer for over 10 years through two residences. Even with the previous company my homeowner’s rates stayed about the same from 1998 through 2007. During a recent review, I discovered that my basic coverage amounts (i.e. dwelling, private structures, personal property and loss of use) have been inflated by around 3.0% annually since 2007, or slightly higher than the general inflation rate, and although I sort of get that, albeit the cost to rebuild is now around 150 times current fair market value (ugh, don’t get me started), over the same time-frame, my insurance premiums (bundled with auto and other discounts) have grown by an annual average of 11.4%. What do you call that?
In fact, excluding additional discounts received in 2009 and 2010, which helped dampen the rate of growth, my premiums spiked by 17.5% in 2008, by another 16.8% in 2012, and finally by a backbreaking 20.4% this year. Had it not been for those additional discounts, my homeowner’s premiums would have averaged 18.2% over the period. Yet, even with a generous discount, my premiums have ballooned by 65.3% since 2007. Now compare that to inflation, which rose by just 13.7% during the same period (via Dollar Times).
So in other words, from 2007 to 2013, my homeowner’s premiums grew 377% faster than inflation. But don’t just take my word for it. A May 2013 article by the Associated Press (AP) confirms that homeowner’s insurance rates have spiked, however it fails to mention why? More specifically, why homeowner’s insurance premiums are currently advancing 691% faster than inflation.
Of course, the insurance industry blames increasing replacement costs (the cost of rebuilding a home from the ground up). Okay, great! But that only accounts for a 2% to 3% annual increase. So how does this translate into an average annual premium spike of 18.2%? According to the aforementioned AP article, which I might add is based on antiquated data, “Nationwide, an average homeowner paid $909 for homeowner’s insurance coverage in 2010, up 36 percent from 2003. Inflation rose 19 percent during the same period.” It goes on to provide a list of what homeowner’s in states bordering the Atlantic Ocean or Gulf of Mexico were paying in 2010.
Following are the average costs in five of those states, ranked by the percentage change from 2003 to 2010:
Florida: $1,544, up 90.6 percent.
Alabama: $1,050, up 54.2 percent.
Mississippi: $1,217, up 53.5 percent.
South Carolina: $997, up 48.4 percent.
Georgia: $833, up 46.1 percent.
Now if the AP had continued its research through the current year, it would have discovered that the situation has gotten a lot worse since 2010, as I mentioned above. Here’s an idea for the media – next time, if you don’t know, why not try asking people who are actually affected? My premiums actually went up by 16.8% in 2012 and by another 20.4% this year, for a two-year average of 18.6%, while inflation averaged a mere 2.35%. So over the past two years, premiums have risen 691% faster than the rate of inflation ((18.6 – 2.35) / 2.35). What’s up with that?
It’s not the miniscule annual dollar increase that bothers me, but rather what the cost will be 10 or 20 years from now. At the current pace, by the time I reach what used to be considered retirement age, God willing, which is less than 20 years from now, homeowner’s premiums will be simply outrageous, perhaps more than 4 times the amounts shown above (i.e. doubling about every five years). In other words, if this doesn’t stop soon, I could be paying around $3,500 a year in retirement. I’m sorry, but this is just unacceptable.
So what did I do? I requested quotes from several local insurers. And what did I find? I received some quotes for less than half my current rate, some 30% to 40% lower, and others around the same. So I struck a deal which comes in at just 64% of the proposed renewal rate. That puts my new rate just 5.7% above what it was in 2006. Now that’s more like it. Perhaps I could have done better, but somewhere along the way I’ve learned that if it sounds too good to be true, it usually is.
The bottom line: Why have homeowner’s insurance rates spiked? As one of my Google+ friends put it, “Because they can get away with it.” Do yourself a favor; check your policy and take action while there’s still a free market (caveat emptor).
References:
Time to reassess your Homeowners Policy
How Homeowner Insurance Rates Have Spiked
Such as . . . ?
Such as shop around, request quotes and compare.
It seems like everything I buy has increased more than the official inflation rate of less than 3%. I just don’t get it.
I’ve been with American Family for 20 years. They want to raise my homeowners $640.00 to $950.00. NOT. I am in WI.
Disinsure.
Circle the wagons.
Trust God.
That should get you started...
You failed to shop for prices and are supried to find out your rates were rising. Stop the presses..
In the past 2 years our wonderful FEMA decided to change their flood maps to include many more properties. So, naturally they included me. There will never be a flood here in this Southern Kalifornia area and my agent agrees and concurs that the expansion was to help pay for damages where floods happen all of the time. Well, I got a quote for over two thousand dollars for one lousy year. That is around three times my homeowners policy. My mortgage holder requires the flood policy. I finally got it much lower when the bank agreed on a policy at around my balance.
$640.00 to $950.00? - That’s insane.
Also, I’m waiting to hear that EVERYONE must buy earthquake insurance. That would make more sense than flood insurance in areas that never gets floods.
That’s crazy too. So FEMA put you in a flood zone and it nearly cost you another $2,000 a year? Don’t give them any ideas on earthquake insurance. The worst part of all of this is when a disaster does occur that’s when most people find out that their insurance covers squat.
Notify your State Insurance Board, or the State Consumer Affairs office.
Such a rise in premiums would justify an inquiry
One big reason that premiums for traditional “high-exposure/low-frequency” insurance (life insurance and homeowners insurance, for example) have risen dramatically in recent years is that insurance companies simply can’t find sufficient low-risk investments to build large reserves to cover potential losses. With interest rates remaining at historic lows for several years, these companies have to lower the investment return projections that are used to compute the growth of their reserves over time.
This is why so many people believe the inflation rates are wrong. The following things have grown faster than inflation.
1. college costs
2. health insurance
3. gas / energy
4. home owner’s insurance
5. taxes in many forms, from the phone bill universal service fees to cover Obamacare to property taxes
And all of these areas are going up due to government regulations constricting supply, government subsidies or mandates that add to the cost.
Good call: “insurance companies simply can’t find sufficient low-risk investments to build large reserves to cover potential losses.” So Bernanke’s plan to keep interest rates down is hurting more than just money market savers, it’s driving up insurance premiums, destroying pension plans, and probably having a myriad of other ill effects.
Yeah, I’ve had twins in college for the last four years and being effected by everything else on your list, I let the health insurance go in 2009, after several same-year rate increases.
What are the chances insurance companies will lower premiums once interest rates return to normal? My guess is nil.
We live in Texas inland from the Gulf but still in the evac zone during a hurricane and so have to carry wind insurance as well as everything else. Even though we haven’t had a hurricane since Ike hit several years ago our rates keep climbing every year. They really stick it to property owners when it comes to rating for replacement costs. Doesn’t seem to matter which company we got a quote from or how much we increased the deductible. It wasn’t that much different.
One of the things that I discovered after Ike hit was that if you didn’t have an agent who would fight on your behalf you were totally screwed. Fortunately I do and that is worth a whole lot. How important this is in the future remains to be seen.
We live in NY and over the last 10 years homeowners has gone from $380 to $820.
And food. There are so many “inflation deniers” that it’s starting to feel like a conspiracy.
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