Policy holders may notice rate spikes in their property insurance and wonder why their premiums are rising. Some premium increases are caused by things out of your control, like inflation, but other factors concern you specifically – including your claims history and credit score.
Some reasons for a property rate hike include:
- Mathematics – Actuaries use mathematics, financial theory and statistics to predict costs and probability, such as how likely customers are to file a claim. The higher the probability, the higher their insurance premiums will be.
- Claims History – Statistically, if you’ve made multiple claims on your property insurance, you’re more likely to make additional claims in the future. While filing one claim may not increase your insurance premium, filing multiple claims within a three-year period may lead to a rate hike. Most home insurers examine claims from the past seven years through the Comprehensive Loss Underwriting Exchange (CLUE).
- Residential Reconstruction Costs – Property Insurers often establish an annual Construction Cost Adjustment Factor (CCAF) to maintain adequate coverage for policyholders. This average fluctuates anywhere from 2-6% depending on research. As home coverage amounts increase, premiums rise with it. Some factors that go into determining the appropriate CCAF include: labor and material costs, building code requirements, licensing / permit fees, professional fees, etc.
- Credit Ratings – Your credit rating impacts insurance premiums. Research shows that homeowners with higher credit scores take better care of their property and are more likely to pay premiums promptly. So, if your credit rating decreases, your homeowners’ insurance may increase accordingly.
- Entertainment and Pet Choices – Lifestyle and entertainment choices, such as adding a swimming pool, treehouse and/or trampoline, may increase your homeowners’ premiums because of the increased likelihood of injury. Additionally, the types of pets you have may also increase your coverage needs and premiums.
- Inflation – Insurance companies use the Consumer Price Index (CPI) as an inflation indicator. When the CPI rises, insurance companies raise the premiums accordingly, to keep up with rising costs.
- Carrier Losses – About 1 in 19 homes experience a homeowners’ claim each year, with an average payout of $11,666. Some of the biggest issues include wind, hail, water and fire damage. In 2017, there were more than a million fires nationwide, costing $23 billion in damage. Insurance premiums go towards covering that damage. As a result, when excessive catastrophes occur and providers must pay more than expected to cover claims, premiums are often raised to return to profitability.
There are numerous reasons for property premiums to increase but be mindful of a few variables that can lower your insurance premiums: staying with the same company for several years, bundling your policies for multi-policy discounts, and adding alarms for additional home protection discounts. Risk Innovations specializes in Personal Lines Insurance and our team of experts are standing by to offer your clients a comprehensive insurance review.