If your homeowners insurance premiums seem to keep rising, all you need to do is check your new mortgage statement each year. There, you will see the additional amount you must pay for coverage. There are reasons why your coverage costs you more each year, many of which relate to increased costs and expenses that the insurance company pays.
Price Increases Are Nearing Double Digits
In 2023, the average cost of a homeowners insurance policy is expected to increase by 9 percent. Premiums may keep rising sharply for the foreseeable future.
The average value of a homeowners insurance claim has increased substantially, especially in the past few years. Prices of contractor labor and building materials have risen faster than the overall rate of inflation. From Oct. 2021 to Oct. 2022, the construction inflation rate was more than double the already high 7.7 percent increase in the Consumer Price Index.
In addition, the insurance company is also dealing with higher administrative costs. They need to pay more to hire employees and for their benefits.
Insurance Companies’ Profits Have Come Under Pressure
At the same time, the insurance company has not been earning the same rates of return on their investment in the past two years. Both the stock and bond markets have produced below-average returns. Insurance companies rely on profits they earn from investing the premiums they receive before they must pay homeowner claims. Thus, you are beginning to understand how insurance companies may see their profit margins threatened. You will be the one who bears the brunt of it because they will pass the costs along to you.
The Number and Severity of Insurance Claims Has Increased
At the same time, an insurance company is a for-profit business. They must also answer to their shareholders, especially when their profits fall short of Wall Street expectations. If the insurance company must pay higher costs, they must pass them along to you as higher premiums. The insurance company’s job is to price risk. If the insurance company assumes more risk, they will need to charge more.
Insurance Companies May Raise Your Rates Individually
On the other side of the equation, homeowners have filed more claims in recent years. There has been more severe weather that has resulted in damage to homes. Not only are there more claims, but the ones that are filed are more severe. These include both fires and storms. Insurance companies have had to pay more themselves, both in claims and to reinsurance companies.
As a homeowner, you have every right to expect the insurance company to fully pay you for the damages you have suffered when the terms of your policy cover them. However, you can expect higher premiums when:
- There is an overall increase in the amount of claims the insurance company must pay.
- You have filed a claim yourself that has resulted in payment.
Finally, homeowners are purchasing more insurance coverage than they had in the past. They realize that their home could suffer more expensive damage, and they want it all covered instead of having to make up the shortfall itself. In addition, the sharp rise in property values means homeowners need more coverage; higher coverage amounts mean steeper premiums.
Contact Our New Jersey Insurance Attorneys at Herold Law, P.A. for Help With Homeowners Insurance Claims
If you are involved in a coverage dispute, contact a New Jersey insurance attorney at Herold Law, P.A. We can deal with the insurance company on your behalf. Call us at 908-679-5011 or complete our online form to schedule a consultation. With offices in the Plainfield area, including Warren, New Jersey, we proudly serve clients across New Jersey.