NEWS RELEASE - May 20, 2004
Why are Homeowners Insurance Premiums going through the Roof?
We’ve been taking a lot of calls lately from our customers who are going through sticker shock when they open the renewal notices for their homeowners insurance. Premiums are going up, sometimes way up. A few homeowners may actually see lower rates, but mostly the trend is in the other direction. The big question is, Why? Customers who may have never filed a claim or missed a payment are getting a higher premium. Is this fair? What’s going on?
First, let me offer a little perspective. For many years, homeowners coverage has been a bargain. The average premium in the East Bay and North Bay Counties of California is $1,242 a year. On a $500,000 property, that’s less than one-hundredth of 1 percent of the home’s value. Compare that to the cost of a typical home repair, remodeling or maintenance items, such as painting. The value of your homeowners insurance looks even better.
There are several main reasons behind premiums going up now, including losses from catastrophes – severe weather and forest fires – which have been worse in the past ten years than in the previous 40 years combined, totaling $100 billion since 1990. This is especially significant here in California. One severe earthquake can total 5 to 7 billion in losses. And you probably didn’t know that the insurance industry paid out 4 of the 5 largest claims of the “Century” within a seven year period in the 1990’s. And still, the cost of home repair and construction is up significantly, meaning the cost of settling claims is on the rise.
Another factor in higher cost is the broad coverage we have come to expect in today’s standard homeowners policy. Over the years, homeowners insurance has evolved into an ‘all-risk’ policy, including items such as guaranteed replacement costs, which has created an even bigger gap between premiums and the cost of covering claims.
Keeping the price down – below what it costs us to settle most claims – has brought in lots of customers, but has recently led to losses in the billions of dollars. Imagine what would happen to any company or industry that consistently sold a product at a loss; for example, if a product that cost $1.20 to manufacture was sold to customers for only $1.00. Such a company would soon be out of business. This is what the homeowners insurance industry has been doing for the past decade.
So what can you do to keep insurance costs down? Increase your deductible, for a start. A deductible of $1,000 instead of $250 can cut your premium by up to 25 percent. Be careful not to file a lot of small claims – broken windows, damaged fences, or items that amount to a few hundred dollars – which drive up costs and can lead to an insurance company non-renewing your policy. Homeowners insurance was never meant to cover routine maintenance items on your home. It’s best to cover a small repair or stolen item yourself and save your insurance coverage for a major loss.
To help avoid having to file a claim in the first place, take the time to take care of routine maintenance. Items that are easy to overlook:
- Replace worn & aged rubber hoses on washing machines and dishwashers, a simple step to prevent water damage. You can find reinforced hoses at your local hardware store.
- Keep pipes in good repair, especially in cold weather, to help prevent bursting and possible flooding.
- Keep gutters free of debris and inspect the roof frequently for signs of leaks or wear.
- In fire-prone terrain, clear underbrush, woodpiles and trees away from the house.
- Have a quarterly family meeting to ensure the entire family is working together to see that personal items are put away and kept neat and orderly.
- And remember to keep a home contents inventory, including a videotape or photographs of your belongings up to date.
In the face of a rapidly changing insurance market, we all can learn new ways to wisely use our homeowners insurance. Don’t take insurance for granted. Use the expertise of your Independent Insurance Agent / Broker that knows your property, and can offer other practical steps to help keep your insurance costs down.
This news release is brought to you by the commitment and assurance of the A.D. Dern Insurance Agency, Inc., keeping you up to date and aware of the ever changing California Insurance market place. Continue to check back with us for other insurance articles of interest.
Our Family Agency has been serving the Community's Insurance needs since 1928!