Why Home Insurance Costs So Much—and How to Pay Less

You don’t have to live in a disaster-prone place for your homeowners insurance bill to make you feel like disaster has struck. Homeowners insurance premiums are expected to rise significantly this year throughout the U.S.

On average, homeowners can expect to see their bills climb 7.1 percent in 2023, according to the business analytics firm S&P Global Market Intelligence. That follows an even bigger jump of 12.6 percent last year, nearly double the overall inflation rate. Historically, homeowners insurance bills have risen only about 5 percent a year.

What’s behind these scary numbers? Read on for answers—and for solutions to help you save money. And if you’re shopping for coverage, check Consumer Reports’ Homeowners Insurance Buying Guide. CR members can consult our exclusive survey-based homeowners insurance ratings for the best companies across the U.S.

Blame the Weather

Insurance experts generally agree that two major forces have pushed insurance premiums skyward. “Broadly, it’s inflation and climate change,” says Tim Zawacki, lead insurance analyst at S&P Global.

There have been more very destructive weather events, including Hurricane Ida in 2021 and Ian in 2022, causing billions of dollars of damage to insured properties. In fact, the years 2019 through 2022 were the most costly three years for insurers ever, according to the American Property and Casualty Insurance Association (APCIA). The industry has responded by passing costs on to policyholders in affected states.

Florida homeowners, many of them still reeling from Ian—and from earlier premium price spikes—can expect premium increases of 40 percent [PDF] in 2023, the Insurance Information Institute, an industry group, projects. In Louisiana, still recovering from Ida, policyholders in the pricey high-risk insurance pool will see premiums swell by an average of 63 percent when they renew this year. Those unlucky folks represent a tenth of all the state’s insured homeowners.

“But it’s not just hurricanes that have had an impact,” says Karen Collins, a vice president at APCIA. “It’s storm events like tornadoes and hail, and also wildfires.” In 2022 residents of Colorado, for instance, which has suffered from mudslides and wildfires, got jolted by a 16.7 percent premium increase, on average, not far behind windstorm-prone Louisiana (27.6 percent), South Carolina (19.7 percent), and Florida (19 percent).

Building Inflation Hits Hard

Higher construction costs have a big impact on what homeowners will see in their policy renewal letters this year. When material and labor expenses go up, so do premiums. Between 2020 and 2022, pandemic supply-chain kinks, coupled with heavy demand, boosted the price of residential construction materials by 33.9 percent, according to the Bureau of Labor Statistics. Workers also became harder to find, forcing builders to raise wages. Though prices have dropped for some materials—like lumber—that inflation hasn’t completely abated.

Demographic shifts can also play a role. South Carolina’s 19.7 percent jump last year was partly due to its growing population, which ratcheted up demand for new homes, Zawacki says. “Local costs for labor and materials are factored into the replacement cost formula, which drives premiums.”

What You Can Do to Save on Homeowners Insurance

If you want to hunt down the best value for your insurance dollar, comparison shopping is a good way to start. Companies don’t judge you and your property identically, so you may get a more favorable price from one company than from another. Just make sure you’re comparing coverage apples to apples.

If you’re worried about losing your standing as a longtime customer, you don’t necessarily need to be. While your current insurer may provide a 5 or 10 percent loyalty discount, staying put may also be sending it the message that overall price hikes won’t send you running to a competitor. Just 13 percent of Consumer Reports members in a recent survey said they regularly shop for new coverage. But among the 7,075 who did switch to a new carrier within the five-year period covered by our survey, 39 percent said they did so because they got a better price.

Keep in mind that in this inflationary period, it’s key to establish the right replacement cost for your home so you’ll be covered in the event it gets destroyed. For that reason, Zawacki favors using a local, independent agent or broker who sells policies from several insurance companies vs. an online vendor. We can go over how the different companies have determined the replacement cost of your home, and we also may recommend policy add-ons that can help your coverage keep up with inflation.

Use These Other Money-Saving Tactics

The first quote you get from an insurer may not be what you ultimately pay, says Collins of the APCIA. “You may start out with a higher quote,” she says, “but when you show the steps you’ve taken to mitigate risks, it can moderate the cost.”

These strategies can help:

Bundle coverage. Purchasing your homeowners and auto coverage from the same company can provide savings of up to 30 percent overall. You could save more, too, if you bundle your boat or motorcycle. “Bundling insurance policies also can simplify your bill paying and record-keeping,” says Loretta Worters, a spokesperson for the Insurance Information Institute.

Keep your deductible high. Higher deductibles equal lower premiums. Going to a $1,000 deductible from $500, for instance, can shave your premium by 25 percent, the III says. And going from $500 to $2,500 potentially saves even more.

Clean up your credit. Insurers in 46 states can use what’s called a credit-based insurance score in their pricing of homeowners insurance premiums. They can also check your score regularly and use it in their renewal pricing. An analysis by PolicyGenius found that poor credit can generate a premium twice as high as good credit. To improve your odds, don’t take on too much credit card debt in the months before shopping, and pay your bills on time. Check your credit reports with annualcreditreport.com regularly to identify errors and correct them. And ask the insurer what impact your credit score is having on your premium. “In theory, the insurer should tell you the source of the score—Lexis-Nexis, Experian, for instance—so you can review it,” says Chuck Bell, programs director for advocacy at Consumer Reports. (CR has argued against the use of credit in insurance pricing, and using credit scores for homeowners pricing isn’t allowed in California, Maryland, Massachusetts, or Michigan.)

Landscape with fire in mind. Cutting back dry brush around dwellings and outbuildings in a fire-prone area can earn you a 5 percent break on your premium. (Worters says it’s rare to see this discount in wildfire-prone California.)

When You’re Ready for Home Improvements, Consider These

You may not want to do major work on your home just to save a few hundred dollars on homeowners coverage. But if you’re prepared to do so, here are places to start.

Add or replace home systems. Replacing old plumbing and adding a home security system and gas- or water-leak detectors can lead to insurance savings of 2 to 6 percent or more. The online insurer Hippo offers 13 percent off your policy for a security system with professional monitoring.

Upgrade the roof. This part of your house is often where problems start, from water leaks to fires from wind-borne embers. So some insurers add a surcharge of 10 to 15 percent for older roofs. (A PolicyGenius analysis found major insurers charging from 12 to 40 percent more for a 20-year-old roof vs. a new one.) Check CR’s ratings of asphalt roofing shingles if you’re ready to replace your roof. And in a hurricane- or tornado-prone area, go to fortifiedhome.org to learn how to install an impact-resistant roof system that could be eligible for a 35 percent discount from some insurers.

Compliments of Consumer Reports

Dan Zeiler

dan@zeiler.com

877-597-5900 X134