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Why Do My Homeowners Insurance Premiums Go Up Every Year?

Jan 19, 2022

By Lisa Brown, Managing Director

The most common question we get from our personal insurance clients is, “Why do my homeowners insurance premiums go up every year?” The answer is two-fold.

First, homeowners insurance premiums increase annually because the corresponding amount of insurance covering your property likewise increases to track with the rise in construction costs. It’s important to note that insurers are not interested in the market value of your property; they are only interested in what it would cost to repair or replace it in the event of a covered loss.

Unfortunately, since construction costs have increased anywhere from 4 to 10 percent over the past 30 years (depending upon the cost of labor and materials), you can expect your premiums and policy limits to increase by that same amount for the foreseeable future since construction costs aren’t expected to go down anytime soon.

Additionally, your insurance premiums continue to go up because of the impact that natural catastrophes in recent years have had on insurers’ balance sheets. It’s estimated the insurance and reinsurance industry losses from natural catastrophe events in 2021 has increased to $105 billion. As the frequency and severity of these climate-related incidents continue to grow, so does the cost of homeowners insurance nationwide. If your property is in a catastrophe-prone area, whether it’s subject to wind, hurricanes, wildfires, hail, tornados or earthquakes, you can expect your premiums to rise by even more than the 4 to 10 percent caused by the increase in construction costs.

With all of that in mind, the question then becomes, “What can I do to better control the increase in homeowners premium costs?” The answer to that question is simple: Take on more risk by increasing your deductible over time, and make sure your broker is actively seeking competitive alternatives in the market for the same or better coverage from a financially strong insurer who has a proven track record of paying claims quickly and fairly.

As big, slow-moving and backward-looking as the insurance industry can be, the fact is the insurance market is dynamic. Policy terms and conditions change over time, as do insurers’ underwriting appetites and risk tolerances. For various reasons—usually poor loss experience and/or too much risk concentration—insurers will often reduce their appetite to insure properties in a particular state or region of the country. When that happens, it opens an opportunity for a new carrier to fill that void.

In the end, the key to combating the seemingly never-ending rise in homeowners premiums is to have a broker who is actively reviewing your insurance program, at least annually, to explore ways to contain or reduce your costs by suggesting changes in coverages, deductibles and even insurers.