Even homeowners who weren’t looking to buy in the red-hot housing market are digging deeper into their pockets lately.
One reason: rising insurance premiums. From 2017 to 2020, the cost to renew home protection insurance has risen 11.4% on average nationwide, driven by economic and environmental factors, according to the national nonprofit the Insurance Information Institute. Rhode Island homeowners faced even bigger increases – 20.4% in that same time frame, according to Mark Friedlander, a spokesman for the institute.
While premium increases are not uncommon, pandemic-induced economic factors have put pressure on insurance companies to cover the rising costs of materials and the values of the homes themselves.
“The tides have really turned in the last year or so when it comes to insuring people’s homes,” said Frank Doyle, senior vice president of insurance for AAA Northeast. “We’ve seen the trends change quite a bit when it comes to the cost of insurance.”
That’s reflected in part in the annual rate filings insurance companies that cover Rhode Island property owners submit to the R.I. Department of Business Regulation. These filings allow companies to recoup some of their expected losses based on risk from natural disasters, as well as inflation and other costs such as lumber, Friedlander said.
DBR’s Division of Insurance reviews and approves or denies companies’ rate changes based on reviews from independent actuaries, according to Brian Hodge, a spokesman for DBR. In several instances in 2021, actuaries pushed back against requested rate hikes, Hodge said in an email.
‘The tides have really turned in the last year or so.’
FRANK DOYLE, AAA Northeast senior vice president of insurance
For example, Pharmacists Mutual Insurance Co., which covers 19 properties in the state, sought a 50.3% rate increase but was only approved for 3.9%, according to DBR rate filings.
Still, the 4.2% average rate increase approved for insurance companies in 2021 is slightly below the 4.5% average in 2020. But that doesn’t tell the whole story.
Individual companies’ rate changes vary widely, from the 23% average increase approved for American Strategic Insurance Co. to a 3.2% average decrease for the United Services Automobile Association.
Amica Mutual Insurance Co. did not file a 2021 rate revision in Rhode Island at all, keeping rates level with the last filing in 2020, according to Peter Drogan, Amica’s senior vice president and chief actuary.
No matter which insurer a homeowner chooses, their annual premium is likely to climb because of other factors, including rising replacement costs at a time when real estate values are sky high and supply chain shortages are raising prices on building materials.
The fixer-upper projects many homeowners embarked on during the last two years of the COVID-19 pandemic have also come with insurance increases. Refinishing the basement or adding a porch increases the home’s value, which in turn requires more coverage, Doyle said.
Even parents who sought to keep their young children amused during quarantine by buying trampolines for their homes have learned that it raises the risk of injuries and raises insurance costs.
“If there’s one thing you can do to keep your premium lower, don’t buy a trampoline,” Doyle said.
Other ways to keep monthly insurance payments as low as possible: Shop around for the best rates and add protections ranging from a home security system that can stop burglaries to sump pumps that minimize the chances of a flooded basement.
One option that about 5% of homeowners choose is simply to not insure their homes, a practice known as “going naked.” But that’s a risky move, and one that is impossible to do if there’s a home loan involved since mortgage companies require insurance coverage.
With house prices so high, most prospective homebuyers aren’t going to flinch over climbing insurance premiums right now.
“It’s already 80% more expensive to buy a home, so that extra $100 a month [in insurance] is kind of a drop in the bucket,” said Andrew Lefebvre, president of Lefebvre Insurance Agency.
Still, Lefebvre said his Providence office had already gotten several calls from customers concerned over the higher bills for home insurance. And as new pricing for rates filed in 2021 hits policyholders in the next few months, he expected the phone will be ringing more and more.
Assuming inflation does eventually subside and supply chain knots begin to loosen, the premium increases won’t be permanent. While Friedlander did not want to speculate about future premiums or rate increases, he said it’s possible that 2022 could bring some relief.
“If the cost of lumber drops or inflation declines in 2022, we will see that reflected in renewals,” he said.
Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.
These insurance companies should be ashame of themselves…We pay lots of money and get nothing back..It’s a wonder why people pull claims? At least there getting something in return for all the money they give..When the time comes you need to put a claim in, they don’t want to pay or find any reason not to…