If you're a homeowner, you probably know firsthand that homeowners insurance rates rarely stay still. In fact, recent studies show that average home insurance rates have risen in every state in the last decade.
Current industry trends show that homeowners insurance is getting more expensive across the board. Though increases vary across all 50 states, the main culprit is the increased frequency and severity of natural disasters.
This article will touch on:
- Home insurance rate changes across the country
- What's behind the rising cost of home insurance
- How homeowners can minimize their insurance expenses
Homeowners Insurance Rate Increases by State
The National Association of Insurance Commissioners releases annual reports on insurance trends and stats. These reports include average home insurance rates for every state. Rate data is based on HO-3 policies, the most common home insurance policy.
The NAIC recently released their 2015 report, the latest full-year data available. In the table below, we compare home insurance rate data from the NAIC's 2007 report with its recent 2015 report. By doing so, we can assess which states saw the biggest increases in homeowners insurance rates.
|Ranking (Worst)||State||Rate Difference|
Note: This data is used with permission of the NAIC.
What are the driving factors behind these numbers? The biggest culprit is bad weather. Natural disasters are both more frequent and costlier. According to the UN's disaster monitoring system, the number of disasters worldwide has quadrupled since 1970. A study by the National Centers for Environmental Information found that 2017 was by far the most expensive year for disasters in America. With damages exceeding $300 billion, 2017 eclipses the record of $214.8 billion in 2005, the year of Katrina.
Expensive and frequent disasters are taking a financial toll on homeowners across the country. Let's take a closer look at the states with the biggest home insurance rate jumps.
Bad news for homeowners in the Sooner State. Average home insurance premiums jumped by a whopping 78 percent from 2007 to 2015. That amounts to an extra $825 dollars per year. Rising home insurance rates have been a problem in Oklahoma for some time.
What is the main culprit behind Oklahoma's skyrocketing rates? Simply put, it's natural disasters. According to FEMA, Oklahoma has declared 186 natural disasters. It's the second most in the country behind California. Oklahoma is less than half the size of California.
When it comes to disasters, Oklahoma has it all. "Oklahoma is prone to severe weather with tornadoes and hail storms in particular causing significant damage to homes every year," says Oklahoma Insurance Commissioner John D. Doak. Oklahoma is smack dab in the middle of Tornado Alley. The Associated Press says the state "gets an outsized share of natural disasters."
Natural disasters lead to enormous expenses for insurance companies. Those expenses are passed onto consumers. "The rates charged by insurers will reflect the expected catastrophe losses for a given geographic area," says Doak. "Insurers plan and model for the likelihood of more common events like break-ins and fires, but also plan for major events like EF5 tornadoes."
Below is a list of claims paid by insurers with yearly average rate increases in Oklahoma:
|Year||Claims Paid||Rate Increase|
To slow rate hikes, Doak says Oklahoma is taking proactive steps. They're working on legislation to require discounts for houses with fortified construction standards. Regardless, Oklahomans should be ready for the worst. "We can’t stop severe weather, wind-driven wildfire, or earthquakes from happening, but we can be better prepared for them," says Doak.
Kansas shares a southern border with Oklahoma. Unfortunately, that means that they also share bad weather. And like Oklahoma, home insurance rates in Kansas have grown quite a bit. From 2007 to 2015, average yearly insurance rates jumped by $627.
The main culprit behind this 69 percent growth is tornadoes. Clark Shultz, Kansas Assistant Insurance Commissioner, says "the exposure to tornado damage is greatest in the central US." He's not wrong. Three of the 10 strongest tornadoes in history took place in Kansas. That includes the 2007 Greensburg tornados, with damages reaching an estimated $268 million.
"We have also seen catastrophes occurring with greater frequency and severity, which often results in higher premiums," says Shultz. In 2011 alone, Kansas residents filed close to 200,000 claims worth nearly $1.1 billion in damages.
Average home insurance rates in Colorado jumped by an annual $557 from 2007 to 2013. This 67 percent jump is primarily due to one factor. "Increases in premiums for homeowners insurance in the last 10 years have been the result of the increasing number of natural disasters in that time period," says Vincent Plymell. He is the Communications Manager at the Colorado Division of Insurance.
Plymell highlighted tornadoes, wildfires, and hail storms as the main culprits. He mentioned several specific disasters. Those include the 2008 Windsor tornado, the 2012 Waldo Canyon fire, and the 2013 Black Forest fire. The two fires alone accounted for over $850 million in estimated insured losses. Colorado has seen an increase in the frequency and severity of such incidents.
But it's not only disasters that spike the scope of an insurance claim. Plymell says that losses are higher "because of the increased size and complexity of many homes, as well as increased costs for building materials." On top of that, Colorado is one of many states experiencing a shortage in construction workers. After a natural disaster, a lack of qualified contractors drives the cost of many claims.
Like many states with huge increases in average home insurance rates, Nebraska is part of Tornado Alley. Hail, fire, and wind are common culprits of property destruction in the Cornhusker State. That's part of why the state's average home insurance rates jumped by $533 from 2007 to 2015.
The 69 percent bump in home insurance rates is also due to the high loss ratio insurers. A report from the R Street Institute found that homeowners insurance companies in Nebraska paid an average of 93.8 cents in claims for each dollar in premiums. The average across all states is 52.9 cents per dollar. That means that Nebraska is a risky market for home insurance companies.
Arkansas is another state in Tornado Alley with rising homeowners insurance premiums. With heavy rain, snow, ice, and even tropical storms, Arkansas has a knack for bad weather. Like those states, Arkansas has seen a recent surge in severe weather. Three of the worst natural disasters in Arkansas history occurred in the past decade:
- 2008 Super Tuesday tornado outbreak
- 2010 Albert Pike flash floods
- 2011 tornado outbreak
Those three incidents were responsible for hundreds of millions of dollars in damages. That's why home insurance in Arkansas costs $550 per year more in 2015 than it did in 2007. That's a 72 percent increase!
The Gulf States have suffered considerably from bad weather and natural disasters in recent years. There is perhaps no state with more recent expensive disasters than Louisiana. Of the 10 costliest hurricanes in history, four impacted Louisiana. That includes:
- Hurricane Katrina
- Hurricane Ike
- Hurricane Andrew
- Hurricane Rita
Damages from Katrina, the most expensive hurricane in history, reached as high as $150 billion. Years of hurricanes means Louisianans pay the nation's third highest home insurance rates. Louisiana home insurance in 2015 costs $545 more than it did in 2007. Surprisingly, that only represents a 39 percent growth. Compared to other states on this list, that's relatively low. But it's because Louisiana already had some of the nation's highest insurance rates in 2007.
Texas has the second highest home insurance rates in the country. From 2007 to 2015, yearly home insurance premiums in the state jumped by $543.
It's not exactly rocket science propelling these increases. "Losses drive the premium increases," says Jerry Hagins, Public Information Officer with the Texas Department of Insurance. "Homeowners losses in Texas are directly related to severe weather events, including hail storms and hurricanes."
Indeed, insurance losses in Texas have been severe and frequent. In the last decade, Texas has seen hurricanes, forest fires, floods, and more. Texas' massive size means the state has a surprisingly diverse climate, and plenty of disasters to go around.
Since the NAIC data stops at 2015, the recent devastation from Hurricane Harvey isn't factored. Unfortunately, Texas homeowners may face another rate hike.
However, Hagins points out that the NAIC data is somewhat misleading. "Use of different policy forms in Texas and inclusion of data from the Texas Windstorm Insurance Association make the NAIC’s calculation of an average premium for the HO-3 policy in Texas artificially high," he says.
Home insurance premiums in the Show-Me State are rising. Insurance rates jumped by an annual $527 from 2007 to 2015. This 73 percent increase is primarily due to bad weather.
"The rate increases are almost entirely due to weather related losses since 2000," says Lori Croy, Director of Communications at Missouri's Department of Insurance. She says that the frequency of harsh weather skyrocketed in 2001, highlighting the 2001 Tristate hail storm and the 2011 Joplin tornado. "Weather losses in general have significantly increased and are the reason behind the rate increases."
Missouri's rising rates are part of a trend across Tornado Alley. "It is clear that weather losses are driving the rates in Missouri," says Croy. "Other Midwestern states experienced the same, as they are prone to the same sort of weather patterns."
Like other states in tornado alley, Missouri's uptick in severe weather is relatively new. "Both fire losses and wind and hail [insurance] losses increased at a very moderate rate from 1989 to 2000," says Croy.
On the other end of the spectrum is Nevada. Home insurance rates in the Silver State have remained surprisingly stagnant. From 2007 to 2015, the average cost of a home insurance policy in Nevada grew by a paltry $42 a year.
So how do Nevada home insurance rates stay still? First, the state's weather conditions are relatively stable. "Nevada has a substantially lower catastrophe risk profile than other states, including neighboring states," says Rajat Jain, Property & Casualty Chief Insurance Examiner for the Nevada Division of Insurance. "Insurers in Nevada are prohibited from considering other states’ catastrophe experience in setting Nevada rates."
The state also relies on consumer protection. "Nevada’s prior-approval rate regulation ensures that insurers need to justify their rate-increase proposals," says Jain. "If a rate request is considered excessive, it is typically requested to be amended downward before it can be approved."
Finally, the state benefits from new development. "Nevada homes tend to be of more recent construction on average than is the case in many other states," says Jain. "Many of the systems in those homes are newer and less likely to malfunction in such a way as to trigger a loss." It's true. Home insurance companies give discounts to homes with new plumbing, electric, and heating systems.
What Makes Homeowners Insurance Expensive
Pricing homeowners insurance is a complex equation. Remember, insurance is a business. Insurance prices across the country are set so that companies can turn a profit. These are some of the key factors in the price of your home insurance premium:
- Location: Where you live is a huge factor in the cost of home insurance. Insuring a house in a hurricane prone area costs significantly more than in a region with calm weather. Insurers also consider your neighborhood's property crime rate.
- Your house: Insuring a large, custom-built home with high end finishes costs more than an average house. Similarly, you're going to pay more to insure an old, poorly-maintained house with a leaky roof. The cost to replace your house from the ground up is a big part of the price of home insurance.
- Claims history: If you've filed several claims in the past, insurance companies view you as a potential risk. In their eyes, you're more likely to file a claim in the future. If your house has an extensive claim history (even from the home's previous owner), you're going to pay more for insurance.
- Credit score: Insurance companies consider your credit score when pricing your policy. It's unfortunate, but if you have bad credit, your home insurance rates will be more expensive.
- Coverage levels: This may seem like a no-brainer. But comprehensive coverage costs more than a bare bones policy. A high deductible costs less than a low deductible. Skimping on add-ons like additional living expenses and medical payments will make your monthly payment lower. The price of your policy depends heavily on your choice of coverage levels.
How You Can Lower Your Homeowners Insurance Rate
If you're looking to trim your home insurance bill, there are several steps you can take:
- Home improvements: Certain home upgrades lower your likelihood of needing to file a claim. Your roof is a big factor in the price of your home insurance policy, so make sure it's properly maintained. If your home is old, it probably has outdated features that may drive the price of your policy. That can include plumbing, electrical, and heating elements.
- Consider lifestyle changes: Life moves fast. And when your life changes, your insurance requirements and possible discounts change. For example, if you've stockpiled a healthy emergency fund, consider raising your deductible. If you got married, you will probably qualify for a home insurance discount. If your credit improves, you can ask your insurer to reassess your insurance score.
- Shop around: It's common for homeowners to stick with their current insurance company, even in the face of rising rates and poor consumer satisfaction. But you're losing money by not shopping around and comparing the rates of different homeowners insurance companies. Each insurance company uses their own pricing metrics, so these companies may charge different prices for identical coverage. Plus, it's common for insurance companies to regularly raise rates, even if you haven't filed claims. Why? They're counting on consumers deciding that finding a new insurance company is too much work. If you want to lower your premium, getting quotes from other insurance companies is a must.
- Avoid claims: It's a simple equation. If you file a claim, your insurance premium will go up. But if you can survive a couple years without filing a claim, you can usually negotiate a lower rate with your insurance company. This requires an emergency fund and a little bit of luck. Stay on top of maintenance and avoid filing a claim whenever possible. Of course, if your roof is blown off by a tornado, you're going to want to file a claim.
- Enhance security: A well-secured house can prevent break-ins and vandalism. In 2015, 1 percent of home insurance claims were due to property damage and theft. It's a very real problem that costs home insurance companies a lot of money. If you take steps to lower your chances of falling victim to property crime, you can earn discounts. That can include installing a fence, cameras, burglar bars, deadbolt locks, and home security systems.
- Bundle: Buying your home and car insurance from the same company will earn you a discount. It's called bundling, and it's like a bulk buy. It's a quick and easy way to shave 20 percent off your policy. You can save more by adding life insurance as well.