Courtesy of Robert A. Davis, President, Davis Agency Insurance
It is now late March 2023 and Property Insurance premiums continue to rise. Most people are seeing their homeowner’s insurance premiums going up by 10 – 15% this year with many seeing even higher increases.
There are several factors behind the rising cost of property insurance. Material and labor costs continue to rise while supply related issues, although better than they were, persist and continue to add to costs. Further the inflationary environment we all find ourselves living in is helping to fuel a continued increase in these costs. The cost to repair and rebuild is considerably more expensive than it was just a couple of years ago and continues to increase. In 2021, during the height of the COVID supply chain issues, the cost of materials used in residential construction are conservatively estimated to have risen 17.% year over year (many believe this number is closer to 18.6% or higher). In 2022 these costs were up another 8.3% year over year. This means that the cost of materials alone, used in residential construction, have gone up 27.% (probably more) in just the last two years.
Construction labor costs have also increased significantly in the last two years. Labor shortages, felt over the last couple of years, are predicted to persist putting further upward pressure on wages.
There are other factors as well which are driving up the cost of property insurance. The increasing frequency of severe weather events are causing more as well as more costly insurance claims. As of yesterday, March 26, 2023 there have been 293 reports of tornadoes in the U.S. The tornadoes which tore through the south over the last few days have caused tens of billions of dollars in property damage alone.
In 2022 there were 18 weather/climate related disaster events with losses exceeding $1B each to affect the U.S. with a total cost of $165B according to a new report from the National Oceanic and Atmospheric Administration (NOAA). A town-flattening hurricane in Florida. Catastrophic flooding in eastern Kentucky. Crippling heatwaves in the Northeast and West. A historic megadrought. The annual report from the nation’s premier meteorological institution highlights a troubling trend: Extreme weather events, fueled by human-caused climate change, are occurring at a higher frequency with an increased cost – in dollars and lives. “Climate change is creating more and more intense, extreme events that cause significant damage and often sets off cascading hazards like intense drought, followed by devastating wildfires, followed by dangerous flooding and mudslides.” Said Dr. Rick Spinrad, NOAA’s administrator.
In five of the last six years, costs from climate and weather-related disasters exceeded $100B annually of which approximately 40.% was insured.
One thing I often hear from insured’s goes something like this – “…these types of events have never happened and are never going to happen where I live so why are my insurance premiums going up?” The unfortunate truth is that more and more these types of events are starting to occur in areas where they never occurred before. One must also remember that the entire basis of insurance is that a pool of many help to subsidize the cost of an insured loss which is sustained by few – when the cost of loses goes up the cost of insurance to all also goes up.
The Davis Agency is a Property and Casualty Insurance Agency; with over 20 homeowner carriers, we can always find the best coverage for the most competitive price.
Robert A. Davis