We hoped for a return to normalcy in 2021. And while many of us resumed visiting with family and friends, traveling and going back to the office, the pandemic has had an enduring influence on certain aspects of our lives beyond our physical and mental health. For instance, supply chain disruptions and inflation appear to be nasty Covid side effects that are expected to linger at least through the early part of 2022.

If you’re a homeowner, you might wonder how this affects your bottom line. Here’s a look at how current trends are reshaping the homeowners insurance scene.

Supply Chain

There was a serious logjam for home builders in 2021. A perfect storm of pandemic-induced supply chain disruptions, labor shortages and inflation caused a 15-year high in home construction backlog. A demand for new homes and renovation projects has resulted in increased costs.

On the surface, that may not mean much to you. After all, if you’re not planning on building a new home or have a renovation project in the works, you might think a hiccup in the construction business doesn’t affect you.

But when a disaster like a hurricane or wildfire hits a region, the increased demand for repairs often causes a temporary spike in rebuilding costs. These costs could be compounded even further with supply chain disruptions in 2022.

Suddenly the coverage amount you bought for your house may be inadequate. If a disaster hits and you have to rebuild your house, you’re on the hook for any amount that’s over your homeowner’s insurance limit.

Another way to handle unexpected spikes in local construction costs is extended or guaranteed replacement cost coverage, if your insurer offers them. These coverage types give you some extra cushion if there’s a rise in construction costs.

inflation of replacement costs

The annual rate of inflation from November 2020 to November 2021 was about 6.8%, according to the U.S. Bureau of Labor Statistics (BLS). But thanks to supply chain issues and production bottlenecks, the cost of some goods has inflated by more than double that figure.

For example, the cost of living room, kitchen and dining room furniture has increased by about 14% nationally from November 2020 to November 2021, according to the BLS.

Because home insurance covers your belongings, you’ll want to be sure you have enough personal property coverage for the cost of replacing them if they’re damaged or destroyed:

Make sure you have replacement cost coverage on your homeowners policy. This coverage pays to replace your damaged items with new items. If you currently have actual cash value coverage, you’ll get reimbursed only for the depreciated value of items.

Do a home inventory to assess whether your current level of personal property coverage is sufficient. Remember, this coverage is for all your furniture, clothes, decorations and random belongings.

STATS ABOUT HOME INSURANCE PREMIUMS

Home insurance premiums are rising across the board due to an influx of new homeowners as well as temperamental weather conditions across the country. Below are highlight facts you should know about home insurance premiums.

aVERAGE HOME INSURANCE PREMIUMS

hOME INSURANCE COSTS

hOMEOWNERS iNSURANCE cLAIM sTATISTICS

While no one wants their home to be damaged or their belongings to be stolen, things happen. When they do, you’ll have to file a claim with your insurance company to get financial help for repairs or replacements. Though certain claims are more likely to make your premiums rise than others, that doesn’t mean you should avoid filing a claim altogether. After all, that’s why you bought home insurance in the first place.

tHE tRUTH ABOUT CLAIMS & YOUR PREMIUMSince

While 1 out of 20 insured homes file a claim every year, there’s still a misunderstanding on how filing a claim affects your premium. Below are some Myths and Facts:

AVERAGE COST OF HOMEOWNER INSURANCE

The average homeowners insurance cost in the United States in 2022 is $1,393 per year for a policy with $250,000 in dwelling coverage. This is a 6% increase from 2021’s average price of $1,312 per year. Having a policy suited to your needs is an integral part of your financial planning.

In 2022, the average homeowner spends $1,393 on homeowners insurance per year for a policy with $250,000 in dwelling coverage.
On average, the most expensive states for homeowners insurance in 2022 are Oklahoma and Kansas, while the least expensive states are Hawaii and Vermont.
Homeowners insurance costs are rising, having increased about 6% in the last year; the average annual premium in 2021 was $1,312.

The national average home insurance cost is $1,393 per year for $250,000 in dwelling coverage. This is a roughly 6% increase over 2021’s average home insurance cost, which is consistent with the 7.5% inflation level that the United States is currently experiencing. However, your home insurance policy premium depends on several factors. Geographic location plays a significant role in premiums. Some areas of the country are more prone to natural disasters, for example, while some areas could have higher rebuilding costs. The average homeowners insurance rates in the table below can give you a guideline for how much you can expect to pay in your state for a policy with a $250,000 dwelling coverage limit.

AVERAGE COST BY COMPANY

Each homeowners insurance company sets its rates, which means that the average home insurance cost will vary from carrier to carrier even within the same state and ZIP code (in states where ZIP-code rating is allowed).

Obtaining home insurance quotes from multiple insurance providers could help you find the coverage you need for a lower price. Comparing multiple companies might help you decide which carrier can offer you the coverage and price that best fits your needs.

AVERAGE COST BY COVERAGE AMOUNT

While the rates above are for home insurance policies with $250,000 in dwelling coverage, not all homes will fit into that level of coverage. Some homeowners may need more or less coverage, depending on the size of their home, the features in their home and the cost of living in the area. For example, homeowners insurance for a home needing only $150,000 in dwelling coverage would usually cost significantly less per year than home insurance with $250,000 in dwelling coverage.

Generally, the less dwelling coverage you have, the cheaper your coverage will be. However, there’s no need to calculate exactly what your house would cost to rebuild before you shop for coverage. Home insurance companies have their own valuation tools to determine this, although having an idea of the rebuilding cost of your home could help you from over- or under-insuring your dwelling. The table below shows the average annual home insurance premium for five different levels of dwelling coverage. This data reflects 2021 average rates.

cOMPONENTS OF HOMEOWNER INSURANCE POLICIES

Every homeowners insurance policy provides specific protections which help guard against substantial financial loss due to fire, storms, theft, vandalism and legal liability. The most common home insurance coverage types include:

Dwelling coverage, equal to your home’s rebuilding cost: This pays for covered damages, up to your dwelling coverage limit, that affect your home’s primary structure and attached structures such as carports or garages. This coverage is typically set at replacement cost value.
Other structures coverage, usually 10-20% of your dwelling coverage limit: This coverage provides property damage protection for structures not attached to your home, such as a detached garage, driveway, fences or shed.
Personal property coverage, usually 50-75% of your dwelling limit: This protects the contents of your home, including clothing, furniture and electronics. Within your personal property coverage, you may have additional limits. For example, you may only have 10% of your personal property coverage for items stored at other locations, and you may have a cap on coverage for certain items, like fine art and money. You may have the option to choose between replacement cost coverage or actual cash value coverage. Replacement cost policies are typically more expensive than actual cash value policies.
Personal liability coverage, usually between $100,000 and $500,000: This pays for medical expenses or damage to others’ property if you are legally liable for injuries on your property, incidents that happen away from your property or damage to others’ property. It also covers legal fees if a lawsuit is brought against you by the injured party.
Medical payments coverage, usually between $1,000 and $5,000: This covers the medical expenses for someone outside your household who is injured on your property, regardless of fault.
Loss of use coverage, usually between 10-20% of your dwelling coverage: This provides coverage for additional living expenses should you need to temporarily stay elsewhere while your home is being repaired after a covered claim.

Not every homeowners insurance policy contains the same components. If you are unsure what your policy covers, talk to your agent or insurance company for clarification.

FACTORS THAT AFFECT THE COST OF HOMEOWNERS INSURANCE

Insuring your home is a gamble for an insurance company. Like auto insurance, certain types of houses — and houses located in certain areas — create a higher likelihood that the company will have to pay claims. Average home insurance rates vary based on several rating factors. Understanding the most significant factors that impact your home insurance premium might help to guide you when shopping for a home.

HOME CHARACTERISTICS

Every home is different, which means insurance companies rate each home on a case-by-case basis. Your home’s specific characteristics will play a role in determining how much you pay for homeowners insurance.

Year built: Older houses often cost more to insure because repair costs may be higher than they would for newer homes. Repairing or replacing features such as custom molding, plaster walls and wood floors could require specialists, making these features more expensive to repair in the event of a home insurance claim.

Roof condition: The age and condition of a home’s roof play a role in homeowners insurance rates. Older roofs may not withstand windstorms or hail damage as well as newer roofs. Likewise, roof materials can affect your homeowners insurance rate. Some types of roofing material may be more resistant to damage, which could lower your premium, and other types may be more expensive to repair or replace, which could increase your premium.

Construction quality: Many homeowners policies do not cover the expense of bringing a home up to the current building code following a claim. Insurance companies typically offer an optional ordinance or law endorsement, which can help pay for expenses related to code upgrades made during covered repairs.

Special features: Features such as hot tubs and swimming pools can make a home more appealing, but they can also increase homeowners insurance premiums if they raise repair and replacement costs and add liability risks. Homes with recreational features such a pool, spa or jacuzzi might need higher liability coverage in case a guest sustains an injury.

LOCATION CHARACTERISTICS

Geographic location typically impacts your insurance rates because every area of the country has a different risk level for potential damages. Some areas may have a higher risk of wind damage, for example, while other areas of the country often sustain damage from fires.

Weather-related risks: Standard homeowners policies generally do not cover flood damage or damage from earthquakes. In fact, some insurance companies do not cover homes in flood zones at all. Other insurance companies sell private flood insurance or offer earthquake coverage in separate policies or endorsements to protect against these types of disasters.

Fire risk: According to the Triple-I, structure fires caused over $12 billion worth of property damage in 2020, the most recent year with available data. Insurance companies rate homeowners premiums based on proximity to a fire station and fire hydrants because rapid emergency response often minimizes damage.

Crime risk: If you live in a high-crime neighborhood, your insurance rates might be impacted. You can help offset this cost to your premiums by installing additional safety features in your home, such as deadbolts and a security alarm system.

WHY FLORIDA RATES ARE SOARING

Along with companies declining coverage, an industry leader says fraud and litigation are causing a crisis. Insurance agents who sell property and casualty policies have a warning for their current and potential clients that the Florida homeowners insurance market is currently in crisis and has been for years due to fraud and frivolous litigation.

In an April 2, 2021, letter to state Rep. Blaise Ingoglia, chair of the House Commerce Committee, state Insurance Commissioner David Altmaier wrote that in 2019, Florida accounted for 8.16% of homeowners insurance claims filed in the U.S., but the state accounts for 76.45% of the lawsuits filed in the U.S. against insurance providers.

“Florida’s ratio of suits opened to claims closed without payment is eight times higher than the next highest state at 27.75%,” Altmaier wrote. “The state of Connecticut has the second highest ratio of suits opened to claims closed without payment at 3.4%. The next highest three states are New Jersey (2.45%), Rhode Island (2.23%), and Pennsylvania (1.82%).”

ROOF CLAIMS LEADING THE LIST

The trend began several years ago when most of the disputes were related to water damage claims. Now, roof replacement is leading the litigation, said Danny Sands, president of Brightway Insurance – The Sands Agency.

“Roofing companies have become storm chasers. When there is a bad storm in an area, the next day they canvass the area with salespeople,” Sands said. Florida insurance regulations allow policyholders to assign their benefits to a contractor, who then can make repairs and send the bill directly to the insurance carrier.

“The contractor will repair the roof and the homeowner thinks that’s great. On the back end, the fair market value for the repair might be $20,000 but the contractor bills the insurance company $40,000. The insurance company denies the claim, so the contractor sues,” Sands said. “At that point, the insurance company makes a decision to pay the inflated price or go to court and maybe pay the inflated price plus attorney fees.”

Insurers are in business to stay in business and pay claims, so the cost of claims and litigation must be passed along to policyholders. The increased cost is causing premiums to rise from one year to the next. “Insurance companies did not build this into their rate structures, but you want your insurance company to make money so they can be there when you make a claim,” said Tim Irish, resident of J.P. Perry Insurance.

He said homeowners should expect an increase of at least 30% to 40% when they renew their policies this year. Some of his clients in Northeast Florida are seeing their annual premium more than double compared with last year. The increased cost of doing business has driven some insurance carriers to stop writing policies in Florida, reducing options for consumers. Sands said several years ago, there were more than 50 companies offering homeowners insurance, but that has dropped to about 10 options.

“In 2014, it was a soft market because a lot of companies wanted to enter the market, especially in North Florida because we miss the big storms. They were all lowering rates to be super competitive and get market share. I’ve never seen such a hard market like we’re in today,” Sands said.

CITIZEN GROWTH

The inflation in premiums is driving many property owners to Citizens Property Insurance Corp. It was created by the state Legislature in 2002 as a not-for-profit, tax-exempt government entity to provide casualty insurance to property owners unable to find coverage in the private market. Policyholders pay smaller premiums when they are insured by Citizens.

In Duval County, the average premium is 10% to 20% less; in Clay County, 20% to 30% less; and in St. Johns County, 30% to 40% less, according to public rate hearing data submitted to the state by Citizens.

Pricing premiums below the private sector market rate means that if Florida were to be hit by a major catastrophe, Citizens could run out of money to pay all of its claims, a possibility the Legislature considered when it established the insurer.

Citizens is funded by policyholder premiums; however, Florida law requires that Citizens levy assessments on most Florida policyholders if it experiences a deficit in the wake of a particularly devastating storm or series of storms.

With private sector companies leaving the market, the state-run insurer has gone from being a safety net to being the insurer of choice for many homeowners. “We write more Citizens than any other company. It’s about 50% of our business,” Sands said. “Citizens has grown a lot, but long term, it’s not the solution. It needs to be the insurer of last resort,” Irish said. “Citizens is expected to surpass 1 million policies in 2022 and will be the least expensive or only option for many Floridians as private companies continue to sustain losses and cut policyholders,” Citizens said in a Dec. 15 news release.

“In November, Citizens’ policies were found to be cheaper than private market options 97% of the time. Since January, Citizens’ policy count has grown from 541,000 to 745,000, a 37.7% increase,” it said. The growth raised concern among Citizens’ board members, who voted in December to recommend the maximum 12% rate increase allowed by law for 2022. Citizens Chairman Carlos Beruff said in the release the widening premium gap, coupled with high litigation rates, is making it nearly impossible for Citizens to shrink and return to its role as Florida’s residual insurer. He also said the recommendation to apply the maximum allowable rate increase is necessary to stem the flood of policies to Citizens.

“We need to take a look at all our options to stop this unsustainable trajectory. Any solution is going to require legislative action to provide Citizens with the tools and flexibility to return to its role as an insurer of last resort,” Beruff said.

LEGISLATIVE CHANGES

Now in session, the Legislature is considering changes that could improve the market for private sector property and casualty insurance providers. Under the proposed bills, SB 1728 and HB 1307, customers would not be allowed to renew their policy with Citizens if a private insurer offers a premium that is within 20% of what Citizens would charge for the same coverage.

In addition, the Senate bill also would reduce coverage for roof damage and allow insurance companies to sell policies that would not offer replacement coverage for a roof that is at least 10 years old, a move that could help control the annual premium increase trend.

“The Legislature has been debating changes to roof coverage and the Florida Hurricane Catastrophe Fund that could have a more immediate premium impact. However, it remains to be seen whether anything will pass,” Ulrich said. Insurance agents say homeowners need to understand the real purpose of casualty insurance.

“It’s an education issue. We have to help people understand that a property policy is not a warranty plan. It is not the insurance company’s responsibility when someone doesn’t put a roof on their home for 30 years,” said Veronica Della Porta, president of The Della Porta Group.

Irish said homeowners facing premium increases – or their insurance company declining to provide coverage for an older roof – might consider replacing the roof themselves to save money on insurance costs or qualify for coverage. “You have to maintain your house. A roof has a reasonable life. If it’s 15 years plus, you might look at the cost of replacement. You could recoup some of the cost,” Irish said.

2022 Outlook for Home Insurance