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why home ins rates are on the rise and what to do about it

This article is meant to be a simple explanation for why home insurance rates are on the rise and some helpful hints on how to lower home insurance cost without sacrificing coverage.

I am not saying I agree with the logic (of the insurance companies) for all the below reasons on why home insurance rates have and are going up, but some make sense.

To start I think it is important to understand the basics of how insurance works. Simply put, everyone pays premiums into a bucket to hedge against the risk of a loss. So that when a percentage of those people have a loss, they can pull out a much larger amount from the bucket than they put in to either fix or replace what they lost. This is very simplified explanation, and now that we have covered that, below are a few big reasons home insurance rates have gone and are going up.

  1. Assignment of benefits.

There has been a trend growing in South Florida over the past years, which has recently been migrating throughout the rest of Florida, and this trend is the assigning of benefits, specifically to roof contractors. To briefly explain, assignment of benefits is when you sign over the rights to your policy to a third party (usually a contractor). The problem here, and why it is affecting insurance rates, is that once you assign the benefits over to the roof contractor, they are now dealing directly to the insurance company. Doesn’t sound like a big deal, but the problem lies in the bad dealings of a growing number of roof contractors (not all roof contractors, but enough to change overall rates) who provide bids to the insurance companies for 50% to 100% (or more) above the actual cost to redo the roof. And when the insurance companies deny the amount (rightfully so based on actual estimates of repairing the roof) the roof contractor sues the insurance company (since they now have the rights to the policy benefits) knowing that the insurance company will, 9 times out of 10, settle since doing so is less expensive then going to court. This problem goes even deeper then this, but we want to keep this article simple.
2. Recent hurricanes (obvious reason, I know)
Irma alone caused close to 8 billion in property damage in Florida, and Matthew causing 1.5 billion. These considerable losses create a void in insurance companies reserves (the amount they are required to keep to be able to pay out future claims), and so must raise rates to fill the void or face possible solvency by the state.
3. Reinsurance rates go up.
Believe it or not insurance companies have their own insurance policies called re-insurance (crazy right) that kick in after major catastrophes to help cover some of the losses that would otherwise cripple the insurance companies. These policies are very expensive and once a state has had a recent catastrophic loss (or losses) these rates go up, and soon home insurance rates follow.

Simple solutions to help lower your rate.

  1. Applying wind mitigation credits.

If you have a home that was built prior to 2002, but have had the roof replaced since 2002 then we recommend you have a wind mitigation done and submit it to your insurance agent as soon as possible. The inspections are low cost ($75 here in Volusia and surrounding counties) and can save you hundreds depending on which credits you have. Even minimal credits typically pay for the cost of the inspection and the credits are good for 5 years (so after the first year you have 4 years of savings).
2. Lower contents coverage
The standard amount of contents coverage on a home policy is 50% of the dwelling amount, so if your home is insured at $200,000 your contents coverage would be at $100,000. Once you consider the policy caps on certain items like jewelry, art, etc. (which are typically capped at $1000 to $2500 depending on your policy terms). Some homeowners simply don’t need 50% of their dwelling amount for contents.
3. Shop around.
Like everything else in the world no insurance company is a one size fit all. Every company has an appetite of what type of risk they are looking for (age of home, zip code, personal insurance score, etc.) and simply finding that right match can save hundreds. Independent insurance agencies are a great resource for this since they typically are contracted to write for many home insurance companies (usually 10 or more) and can help guide you to the right fit while also educating and consulting you along the way.

I hope this article helps! I tried to keep it as unbiased as possible. If you have any further questions I would recommend you contact your local independent insurance agent, or us 🙂 for we would be more than happy to help!
About the Author:
Richard Dixon is the owner operator of Wellcovered Insurance a local independent insurance agency located in Orange City, Florida.