Are you one of many homeowners who have seen their homeowner’s insurance increase considerably or, worse, had your insurance canceled?
We did some investigating and want to share with you why these changes are happening and a little bit about what you can do moving forward in a crazy market.
Causes For The Increases
Inflation
Since 2022, the cost of home construction has skyrocketed. The cost of construction increases across the board have significantly affected the dollar amounts needed for claims payouts. Simply put, the cost of replacing everything, from appliances to 2×4’s, is much higher now.
Natural Disasters
The natural disasters in our country of late, from North Carolina storms to California’s massive wildfires and other smaller wildfires in the west, have caused significant loss and generated sizable insurance claims. Mike Lowry of Phocus Insurance Services tells us those fires effect our rates in Arizona.
The natural disaster events have been heart breaking with losses of:
• $53 Billion is the estimated loss from Hurricane Helene in North Carolina. This amount covers housing, businesses, infrastructure, and crops.
• $250 Billion is the estimated losses from the recent California wildfires.
Regulatory Issues
The problem, to some extent, is of our own making. Well-meaning legislators in California, for example, have a law that states insurance companies cannot raise rates beyond a certain percentage each year. This policy makes it very hard for insurance companies to do their job.
While Arizona’s Department of Insurance and Financial Institution (DIFI) does not regulate rates, it does monitor those rates.
DIFI:
•Collects data on average rates by insurer.
•Identifies grants to help homeowners with wildfire mitigation efforts.
•Offers answers to many homeowner questions on their website in an FAQ format.
Consequences
Though the insurance companies have paid out on many claims, the current payout pace is not sustainable. The insurance industry needs to make changes to stay in business and continue to insure our properties.
With the increase in homeowner claims, there comes an increase in premium rates and a change in the way a home is assessed for risk.
The insurance company may decide to cancel a homeowner’s policy. If they do, it will be at the end of the homeowner’s contract when it is time to renew.
The traditional scoring system used to determine a home’s risk factor has been broadened, says Mike, and underwriting has been tightened and is based on location and the threat from fire. Satellite images show how far the home is from brush and helps to determine how likely the home is to be affected by wildfire.
Homeowner Tip: *Mike tells us that it is worthwhile to shop different insurance carriers as they vary in who and where they will insure. There are also carriers who specialize in high risk.*
What Are Insurance Companies Doing?
Insurance companies are taking several steps to mitigate costly payouts:
• Raise Premiums. This is one way to improve their bottom line.
• Reducing Coverage Limits. Insurance companies may lower the limits of coverage for certain aspects of your homeowner’s insurance plan to reduce their exposure.
• Reinsurance. Insurance companies provide insurance for other insurance companies to spread the risk and protect them from loss.
• Improve Risk Management. Educating homeowners about steps to protect their property from disasters such as wildfires helps minimize loss. Through the implementation of urban/wild-land safety practices and onsite inspections to reduce the likelihood of wind damage, losses can be reduced for you and your carrier.
Some aspects of safety go beyond homeowner ability and the ability of insurance companies to affect. The lack of municipal infrastructure is a major contributor to community safety. Often, cities in more rural areas lack sufficient basic services needed to protect property.
Let’s Take A Quick Look At Issues Affecting Communities Across The State
• Water. While it is always a precious commodity in our state, smaller and more rural communities often lack fully developed water distribution infrastructure. Water distribution systems incorporate necessary safety measures, such as regularly spaced fire hydrants, for effective firefighting. However, many communities are on individual wells and lack the necessary water supply to fight a structure fire. This type of issue may cause an insurer to raise rates significantly or abandon coverage altogether for that community.
• Fire Stations. Adequately staffed fire departments are another consideration that insurance companies take into account when setting your insurance policy and rates. Growth in the valley and around other areas of the state has been quite explosive. Unless carefully planned, some communities may not have adequate resources to protect property.
• Location is another concern for insurers. We all love the idea of living in the tall pines away from the hustle and bustle. Forest fires are unfortunately quite common, and choosing to build a home in the forest comes with a risk that an insurer may not want to undertake your coverage or could charge high rates to help mitigate potential losses.
What Can Homeowners Do?
We talked with some industry experts with the Shepherd Insurance Company in Prescott, AZ. Bill Chilson and Laurie Sell have almost a century of collective experience. They tell us that many brokers and agents are as concerned as we are. Though it sounds callus, if all that is happening is your rates are going up, you should count your lucky stars. Non-renewal is a major issue and not one that is easily solved, if solved at all.
Some Remedies Are:
• Contact an independent insurance agent. While not aligned with a specific company, they can increase the chances of finding a company that would be willing to take on your risk. It is not a guarantee, though.
• Consider raising your deductible amounts. This means you will not get as much money in a claim and will have to spend more out of your pocket for repairs, but your premiums will decrease. Starting an emergency fund will help to alleviate the difference in cost of replacement and what the insurance company covers.
• Consider forced placed or lenders simple. If you have a mortgage and cannot get the insurance required for your existing mortgage, a tool called Forced Placed or Lenders Simple insurance covers only the mortgage amount. It keeps your mortgage paid but does not replace anything.
• Build up defensible space. While not guaranteed to get insured, having your home up to par with defensible space protocols will make your home more acceptable to insurers.
• Contact your fire district. If you live in an area where your fire support is in a Fire District, contact that district and find out how you can support them.
• Contact your state legislators. Let them know about your issues and discuss possible legislative solutions that might help.
The impact of high insurance premiums is felt across the board. Realtors, builders, suppliers, mortgage lenders, and homeowners are all affected.
Remember, we are all part of the same community to be individually and proactively responsible and together can make our community stronger.
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PODCAST
March 8th, 2025
Are you one of many homeowners who have seen their homeowner’s insurance increase considerably? Or had your insurance canceled even if you’ve never filed a claim? We did some investigating with the help of Mike Lowry and Clay Janson of Phocus Insurance discussing why these changes are happening. Plus some solutions you can do moving forward in a crazy, ever changing insurance market.
Original Broadcast Archive Page With Expanded Content
PHOTO CREDIT
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