How Homeowners Insurance Cost Are Rising Faster Than Inflation

If you own a home, be prepared to pay a higher premium for insurance: Homeowners' insurance premiums increase in lockstep with the rest of the economy.

As with food and fuel, the cost of homeowners insurance increased last year and does not appear to be waning anytime soon. According to the Insurance Information Institute, a trade association, the average yearly premium increased to nearly $1,400 in 2021, up 4% from 2020. According to Bureau of Labor Statistics data, inflation in 2020 was estimated to be around 1.2 percent.

According to MarketScout, which measures insurance prices, the average insurance rate for residences valued at less than $1 million jumped 3.7 percent from the same period in 2020 but increased by 6.3 percent for those worth more than that. According to a November report from the Federal Reserve Bank of Philadelphia, this contrasts with an average prediction for consumer inflation of 4.6 percent for the fourth quarter of last year.

Between 2017 and 2020, average homeowners premiums climbed by 11.4 percent, outperforming inflation by 7.3 percent during the same period.

Many of the pandemic-era supply constraints that are increasing other prices also increase the cost of homeowners insurance. Therefore, if supply chain and labor shortage issues caused by the pandemic do not resolve quickly, home insurance prices will continue to rise.

Several factors go into determining the cost of homeowners insurance. One of the factors considered by house insurance is the cost of rebuilding your home in the case of a catastrophe.

As a result, the increased cost of practically everything associated with home construction—wood, steel, concrete, architects, and contractors—has contributed to homeowners insurance premiums. According to reports from the Bureau of Labor, the National Association of Home Builders reported that wholesale prices for "all inputs" used in residential construction increased 17.3 percent year over year in November and were 22.7 percent higher than pre-pandemic levels Statistics' latest Producer Price Index report.

Another reason contributing to premium increases is the growing number of natural disasters resulting in billions of dollars in losses. According to the National Centers for Environmental Information, the United States had seen 18 weather/climate disaster occurrences with losses surpassing $1 billion each in 2021 as of Oct. 8. The centers said the annual average for such incidents between 1980 and 2020 was 7.1 (adjusted for inflation).

Climate risk and the rising frequency and severity of disasters have been factored into insurers' policies. Rates may also vary by state. Additionally, rates are determined by each state's actual and predicted losses. Specific home insurance rates could quadruple this year in catastrophe zones near the California wildfires.

Cost Containment

While consumers have little control over inflation or natural disasters, Experts explain that they may take specific steps to mitigate the impact of increased rates.

They include the following:

• Increase your deductible amount (defeats the purpose of insurance)
• Combine your auto and homeowners insurance plans with a single insurer to receive a discount.
• If you live in a disaster-prone area, invest in loss-mitigation strategies.
• Shop your insurance annually

You may be required to conduct a cost-benefit analysis. However, if you live in a hurricane-prone state, you may want to consider shutters and wind-resistant windows. This investment may result in specific discounts, resulting in some cost savings.