Posted on 06/21/2013 7:56:08 PM PDT by NaturalBornConservative
Caveat Emptor
- By: Larry Walker, II -
Have you checked your homeowners insurance policy lately?
Ive been with the same insurer for over 10 years through two residences. Even with the previous company my homeowners 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, dont 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 homeowners 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 homeowners premiums grew 377% faster than inflation. But dont just take my word for it. A May 2013 article by the Associated Press (AP) confirms that homeowners insurance rates have spiked, however it fails to mention why? More specifically, why homeowners 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 homeowners 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 homeowners 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. Heres an idea for the media next time, if you dont 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). Whats up with that?
Its 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, homeowners 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 doesnt stop soon, I could be paying around $3,500 a year in retirement. Im 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 thats more like it. Perhaps I could have done better, but somewhere along the way Ive learned that if it sounds too good to be true, it usually is.
The bottom line: Why have homeowners 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 theres still a free market (caveat emptor).
References:
Time to reassess your Homeowners Policy
How Homeowner Insurance Rates Have Spiked
It's because of all earthquakes and hurricanes you get.
It isn’t a direct correlation like you might think. If you build your long-term reserves based on a projected 5% average return for safe investments (U.S. Treasuries, for example) and the rate declines to 2% for a few years, then you can never really go back and make up the “lost time” when your reserves were under-performing.
Keep in mind that Bernanke’s plan is not to “keep interest rates down.” Interest rates are a tool to accomplish a broader objective, which is tied to the core mandates of the Federal Reserve: stabilize the value of the U.S. dollar while maximizing U.S. employment at the same time. It’s a balancing act in any age, but these days it is much more difficult.
What do you expect to pay?
Most people with mortgages are required to have insurance.
With a 30% discount, MetLife proposed $866. Nationwide did it for $554. Let’s just say, Snoopy (the MetLife mascot) wasn’t on my side.
Isn't that a typical average? $500 - $650 for midwest states?
I don’t know about the Midwest, but that’s about what it was here in 2006. I deal with a lot of people and I have seen some in the same area as me paying $1,200 to $1,900, and asked them why they are paying so much. Even my next door neighbor was paying over $1,000. It’s a question I bring up in casual conversation. I discussed it with my parents who live about 15 miles away, and their home is worth more than twice mine, and even they said I was paying more than them. So there’s definitely some abuse going on.
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