Are you wondering what is causing home insurance to spike? There are many factors that drive home insurance premiums, but a few that we are currently feeling the effects of include low housing inventory, a shortage of skilled labor, record claims amounts, and higher material costs.
The Impact of Housing Market Dynamics
According to the U.S. Bureau of Labor Statistics, home prices have increased by 28.17% over the past five years. This surge in home prices has directly influenced the cost of building and repairing homes, which in turn affects home insurance premiums. As the cost of repair and replacement rises, so do the insurance rates.
In recent years, we have witnessed record-breaking shortages in homes available on the market. Since 2019, there has been a steady decrease in homes for sale. The Federal Reserve Bank reports that in January 2019, there were approximately 1,110,500 houses on the market across the United States. By January 2022, this number had plummeted to 346,500. This drastic reduction has led to a 46% increase in home prices since 2019, further driving up insurance costs.
Labor Shortages and Rising Costs
The construction industry is also grappling with a shortage of skilled labor. As demand for housing increases, so does the need for laborers. However, a decline in employment in labor trades has been observed, with many workers seeking better compensation and work-life balance that trades often do not provide. Consequently, laborers are commanding higher wages, with the average hourly rate for a laborer in Washington State rising to over $43 per hour.
Material Costs on the Rise
Building materials have also seen a significant price increase. From 2019 to 2022, there was a 7.61% rise in the cost of building materials. This increase translates to higher costs for home replacement and repair in the event of a loss. CoreLogic’s 2024 Quarter 4 construction report highlights that the overall reconstruction cost of a home increased by 2.8%, with carpet prices soaring by 20% and clay bricks by 12% compared to previous quarters.
Record-Breaking Claims and Their Consequences
One of the main factors affecting home insurance increases is the unprecedented claims we have seen in recent years. In 2023, the industry suffered $15.2 billion in underwriting losses, double the figures from previous years and the highest claim amounts paid out in history. The closest we came to this was in 2011, with $14.8 billion in claims. Natural disasters like hurricanes and wildfires have contributed significantly to these losses, prompting insurance companies to adjust premiums to recover from these financial setbacks.
How to Navigate Rising Insurance Costs
Understanding the factors behind rising home insurance costs can help homeowners make informed decisions. While these trends are challenging, there are steps you can take to manage your insurance expenses. Reviewing your policy, increasing your deductible, or bundling insurance policies are potential strategies to consider.
For more personalized advice and to explore options that suit your specific needs, don’t hesitate to reach out to our agency. We’re here to help you navigate these changes and ensure you have the coverage you need.
