Home Insureds Face Lowest Hike in 6 years

While coastal homeowners are expected to face rising prices and restrictions on their insurance, those on drier land should fare better in 2005. The Insurance Information Institute has projected that the average cost of insuring homes will rise by only 2.5 percent in 2005, the smallest increase in six years. That’s a national average, not necessarily what those on the coasts can expect, however.

The 2.5 percent projected increase represents a continuing slowdown from 2004 when homeowners insurance costs rose by an estimated 3.8 percent. The III estimates the average cost for homeowners insurance in 2005 will be $677, up $17 from $660 in 2004.

“Small decreases in the frequency and cost of claims have helped improve insurer financial performance, resulting in a continuing moderation in the cost of homeowners insurance in 2005,” said Robert Hartwig, senior vice president and chief economist for the III.

Home additions and upgrdades
Hartwig pointed out that some of the increase in the cost of homeowners insurance reflects choices made by consumers themselves. “Over the past several years, millions of families took advantage of near-record low interest rates, purchased larger homes or made additions and improvements to their existing homes in record numbers,” he said. “Bigger, newer and upgraded homes cost more to insure simply because they’re more expensive to rebuild or repair.”

Approximately 41 million homeowners have improved their homes between 2001 and 2002. In 2003, the most recent year for which annual figures were available, an estimated $177 billion was spent on home improvements.

Losses are the most important driver of insurance premiums. According to the III, between 1990 and 2002, home insurers paid out, on average, $1.17 in losses and expenses for every $1 they earned in premiums.

Home insurance costs are, of course, also influenced by where people live. “Homeowners insurance rates in some parts of the country continue to rise because of the extraordinary costs associated with paying these catastrophic claims,” said Hartwig. “In fact, virtually every part of the country is either at risk of or has experienced a billion dollar disaster.”

Many homeowners in coastal regions assume a larger portion of the risk through higher deductibles–usually a percentage of the insured value of the home.

Topics Homeowners