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You haven’t filed any claims and there haven’t been any hurricanes lately, so why are your homeowners premiums increasing?
The Southeast coast is vulnerable to severe weather events. Many believe weather is the only factor, or even the main reason that premiums continue to increase. In fact, there are other reasons that cause costs to rise. These are easy to understand, but very difficult for you the consumer to control.
First, non-catastrophic homeowners claims are increasing rapidly, both in number and in cost. These include events like fires, mold and water damage claims, increased insurance fraud, and higher settlements from liability losses, for example, dog bites.
Let’s look at a few of these reasons in depth.
In this down economy, rising prices for metals, especially copper, are fueling a mini-boom in losses. Insurance claims for metal theft increased 81 percent in the period from 2009 to 2011 when compared to 2006 to 2008, according to the National Insurance Crime Bureau. Thieves are stealing metal wherever they can find it. They may steal homeowners’ duct work, plumbing, electrical wiring and copper coils within air conditioners.
The number of residential sinkhole claims filed with Citizens Property Insurance Corp., Florida’s largest homeowner’s insurer, nearly tripled in the past five years, from 1,482 claims in 2007 to 4,024 last year. The average claim now costs Citizens nearly $90,000. In 2010, the last year for which figures are available, the state-run company took in $32 million in premiums but incurred $245 million in sinkhole losses.
America’s attitude toward insurance fraud is changing and this change affects how much you pay for premiums. In a 2008 study by the Coalition Against Insurance Fraud (CAIF), one in five adults surveyed felt that insurance fraud was acceptable under certain circumstances. In that same study, 16 percent of the respondents felt it was acceptable to inflate a claim to cover their deductible. The recent economic downturn has only increased fraudulent claims activity. The CAIF found that state fraud bureaus tasked with investigating and preventing fraud reported all the major categories of fraud tracked by CAIF increased by 15 percent in 2009. Fraudulent insurance claims continue to increase everyone’s premiums.
One of the significant costs of doing business for insurance companies is the premiums they pay for reinsurance. Reinsurance is insurance for insurance companies. It allows insurers to transfer some of their risk to larger national or international reinsurers.
Insurers derive several benefits from reinsurance.
These factors are all upsides for insurers, making them more financially stable and better able to meet the needs of their customers.
There are several downsides to reinsurance, however. Since reinsurers operate on a wide scale, catastrophes that occur outside your local market will influence the rate that insurers pay for their reinsurance. An earthquake in Indonesia or a tornado swarm in the US Midwest can drive up the premiums that your insurer pays, and ultimately, can increase the premiums that you pay along the Southeast coast.
Reinsurers use sophisticated computer models that forecast the likelihood and severity of catastrophic events like hurricanes, fires, or earthquakes. Recently, models became more conservative, predicting a significantly greater chance of major weather events. Only time will tell whether this increased pessimism is justified. If these models prove too conservative, your premiums could drop in the future.
Unfortunately, much of what we’ve been considering is beyond your ability to influence. Here are some steps you can take to reduce your costs and / or your risk.
These actions can reduce your risk of theft:
Have a contractor inspect your roof, basement, foundation and windows. Make certain that your home is up to or exceeds code. Remember that construction codes are a minimum standard, and build or rebuild according to the risk your property faces.
This is the easiest step you can take. Look at insurance as a protection against catastrophes, and self-insure against small losses. This will save you money immediately, save time and paperwork for you and your insurer, and ultimately can help to reduce your premiums.
Even in states not often impacted by weather, homeowner’s rates are rising. The future of homeowners rates is uncertain. Contact one of our agents near you today for more information about how you can reduce your homeowners insurance premium.