If you’re like most Americans, the value of your home definitely did not increase in 2011. So why are experts predicting that homeowners insurance premiums will continue to rise, some by as much as 18% according to an A.M. Best report? You may not like or agree with the answer, but those same experts say it may be because your homeowners insurance premiums had been relatively cheap for years.
It seems that soft market conditions made it difficult for insurance companies to obtain permission to raise their rates until recently. Homeowners insurance premiums began to trend upward a couple of years ago in the wake exceptionally severe storms that affected the U.S. Midwest and southeast regions. Then there was Hurricane Irene, one of costliest hurricanes to ever hit America’s northeast, plus the unprecedented earthquake that rattled Virginia last August. Add in the impact of global disasters like the tsunami in Japan, floods in Thailand and Australia and earthquakes in New Zealand that resulted in higher reinsurance costs. All piled on, it left insurance companies feeling vulnerable and set up conditions that favored their requests for rate increases to mitigate future risk. Or, in layman’s terms, they’d paid out a whole lot of cash and were concerned that they weren’t bringing in enough revenue to cover another year with lots of claims unless they could raise their rates.
Of course, the insurance companies’ financial woes don’t mean much to you if you’re facing a premium increase of 10% or more on a home that’s so far underwater you can almost smell the seaweed. Yes, your home has lost value, but your premiums are based partly on the cost to rebuild you home with today’s dollars, not its appraised market value. Energy prices are skyrocketing and that will be reflected in the cost of all goods including building materials, as well as labor.
So what’s a poor homeowner to do? Hint: dropping your insurance is not an option, especially if you still owe money on your mortgage. As soon as your lender gets wind that your policy has been canceled, they have the legal right to purchase a policy for you and tack it onto your monthly mortgage payment. And, they have no legal obligation to shop around for the cheapest coverage, either. You might find a smaller, unrated insurer out there who offers cheap homeowners insurance, but resist that temptation. If a catastrophe strikes, that unrated insurer may not have the funds to pay your claim. Your best bet is to get competitive quotes (easy to do right here at Einsurance.com) from reputable insurance companies.