Who’s to blame when my home insurance premiums go up?
If you’ve seen your homeowners’ insurance premiums go up recently, you’re not alone. All this red indicate states that have had premiums rise by at least 20% since 2023. So, if you’re looking for someone to blame, this is the video for you. So, get out your pitchforks…we’re going to tell you who’s to blame when your home insurance premiums go up. If you want to play along, post a comment right now about who you think is most to blame. I’d love to see what you all think before and after the video.
Insurance companies
Let’s start with the obvious culprit: the insurance companies. There’s a lot of hatred right now out there for big corporations. So what’s the case for blaming the insurance companies for your rising rates? Obviously, there is a profit motive. They want to make money and will do what they can do to use any excuse to raise your rates. They might even overgeneralize their risk assessments to justify rate increases. Their lack of transparency and their lobbying against consumer protection laws make sure that consumers are left at a disadvantage. Okay, the insurance companies are easy to hate…but there are other places to place the blame.
Mother Nature
Maybe we need to put a little more blame on mother nature. In fact weather events that cause at least a billion dollars has been going up for years. And “Insured losses from U.S. storms have grown 8% a year for more than a decade” (source). Those losses have to be paid by someone…and I don’t see Mother Nature cutting the check. Hail causes a particular problem for insurers. It drives 50% to 80% of insured losses from thunderstorms.
Local roofing companies
This is where Mother Nature may not be completely to blame. Every time there is a big storm, local roofing companies go door-to-door to convince people that they have experienced hail damage. Heck, sometimes there doesn’t need to even be a storm. In the last year, I have had two people come to my door and one of them cold call me to tell me that I really must replace my roof. They assure me that my insurance will cover it, too. I am sure some of these claims are legitimate, but there is chatter in the industry that homeowners’ insurance might just stop covering hail damage because they can’t afford to replace everyone’s roofs every ten years.
This is where the roofing companies howl in protest. They would claim that it’s totally unfair to lay the blame with them. And, it’s true that this issue is bigger than them.
Property developers
A lot of those billion dollar weather events are because property developers keep building houses in dangerous places: on the beach facing historic hurricane paths and near fire-prone national forests. Even when the placement isn’t the problem, property developers often resist adding features that would make a home less disaster-prone. That would just drive up the cost of building…and the home buyer doesn’t care because–let’s be honest–they’re never going to get hit by lightning.
Property developers would argue that they are following the law when building homes. To blame them is supremely unfair. What? Do we really want to make the housing crisis worse by making homes even more expensive?! And, anyway, insurances rates are regulated, so you should blame your local state insurance regulator.
State insurance regulator
And it’s true. Home insurance rates cannot go up unless the rate increase is approved by state regulators. For many states, getting approval can be an arduous process where an insurance company has to submit proposals, sometimes a thousand pages long, to justify the increase in rates. But every regulator has a different standard for determining whether the insurance company can raise rates. This study showed that in states where regulation is less stringent, rates go up when disasters happen in other states…because the insurance company is trying to cover overall costs instead of just covering the risks that your house might be exposed to. (Regulatory friction by state Source, p. 73).
The insurance companies then argue that when regulators make it too hard for them to cover their losses, they just end up leaving some states. California and Florida’s insurance rates aren’t too bad relative to the rest of the country, but many companies are just choosing to not do business in the states because they lose money there. Fewer insurance companies mean less competition, which means higher prices…or worse coverage.
And this is where the state insurance regulator tells you that you have misplaced the blame. The real culprit is…
Adam Smith
Adam Smith. Okay, I don’t really mean that the Eighteenth Century Scottish economic philosopher is to blame for today’s insurance rate. He’s a stand-in for “the economy.” Adam Smith identified the “invisible hand” of the economy that drives prices and demand. If you want to blame someone for your rising premiums, blame inflation. When it’s more expensive to replace a destroyed home, the insurance company has to charge more. Before the pandemic, the cost of building materials had been increasing faster than inflation. Since the pandemic, they have gone up 30% (source). And a big part of that is the cost of labor.
This is where Adam Smith rolls in his grave and lectures us on the fact that prices are just a function of supply and demand. He shouldn’t be blamed. If you want to decrease the price, you can either increase the supply or decrease the demand. Yup, he’s pointing the finger at you.
You
There are a couple of ways that you might actually be part of the problem. Hear me out! Don’t get offended. As consumers, we want bigger homes. We want them in more beautiful places. These things are more expensive. But even if you bought a modest row house in a middle-class suburb, you might still play a role in the increase in your insurance premium. If your credit score has dropped, the insurance company might actually charge you more. And, believe it or not, if you have ever called your insurance company just to ask a clarifying question, that could have caused your insurance premium to go up when you renewed. The industry calls those “zero dollar claims.” They figure if you haven’t forgotten about them, you are more likely to issue a claim than someone who never calls them.
You might also be partly to blame because you bought insurance years ago and haven’t shopped around since then. You really ought to “re-shop” your insurance every year or two to make sure you’re getting the right coverage at the lowest possible price. Insurance companies may have just quietly raised your prices over the years, grateful that you are the kind of customer that isn’t paying attention.
What can you do?
That’s why it’s so crucial to shop around. And the best way to do that is to use an independent insurance agent. They don’t work for any one insurance carrier, so they can help you find the insurance carrier that would be perfect for your situation. If you want to find an independent insurance agent in your area, go to The Yukon Project. Our partner has relationships with up to 200 different carriers across the United States, so they have a good chance of finding a company that perfectly meets your needs. They also know the ins and outs of the insurance industry so they help you find all the discounts you qualify for and explain the coverage so you don’t buy more than you need. Signing up only takes a couple of minutes. If they can’t help you out, you have no obligation to use them.
What do you think? Is there someone you blame for the increase in your insurance premiums that we didn’t mention. Of all the people on our list, who do you blame the most. Leave a comment below. If you found this information helpful, please like this video and subscribe to our channel. Your support helps us out and we really appreciate it.
