Home Insurance Premiums Rising Faster Than Inflation

 Homeowners renewing their policies are discovering home insurance premiums rising do to increasing material costs, supply chain disruptions and climate change are combining to drive rates up by an average 4 percent to an average annual rates of $1,398, according to the Insurance Information Institute, a nonprofit organization known as Triple-I that provides information on the insurance industry. 

Since 2017, home insurance premiums rising 11.4 percent on average, which means they are increasing faster than inflation— and insurance experts expect that the rates will stay high.

The cost of insuring a home depends on several factors. Location often drives costs up, particularly if the house is in an area prone to natural disasters. Some areas have higher rates because it costs more to rebuild a house there. How resistant a house is to natural disaster — for example, if it was built to withstand an earthquake — can affect rates.

Home Insurance Premiums Rising Faster Than Inflation (continued)

Rising costs for raw materials, particularly lumber, and supply chain disruptions are adding to the bottom line. When the pandemic hit, lumber producers feared a repeat of the Great Recession. They cut production and unloaded inventory. But demand soared, catching them by surprise. The price of lumber spiked to $1,500 per thousand feet of board in March, a 400 percent year-over-year increase. The Biden administration’s decision in November to double the tariff on Canadian lumber to 18 percent, up from 9 percent during the Trump administration, also affected prices. Canada has been the largest U.S. trade partner for lumber, providing about 30 percent of U.S. supply. Click here for more tips to reduce your premium.

Home Insurance Premiums Rising Faster Than Inflation (continued)

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Most homeowners want their home back in the condition it was before the event destroyed it, which is why replacement cost — the cost to rebuild the home as it was — often differs from the value of the home. Replacement cost also doesn’t take into account the value of the land or current building codes. In some cases, the replacement cost of a house is less than the value of the house because the land value is high in that area. Homeowners must rebuild their property according to the new codes, which may cost more.

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