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Home insurance goes through the roof

Premiums are shooting up, and insurers are dropping some types of coverage that once were standard.

By MSN Money Partner Mar 9, 2012 12:23PM

This post comes from AnnaMaria Andriotis at partner site SmartMoney.


SmartMoney on MSN MoneyFaced with falling home prices and climbing maintenance costs, struggling homeowners may soon face another setback: higher insurance premiums.


After rising steadily for the past few years, homeowners insurance premiums are expected to jump an additional 5% this year to $1,004, according to the Insurance Information Institute. That's the biggest yearly increase since the market downturn and will mark the first time the national average premium is above $1,000.


Premiums will rise even more in some states. In Georgia, GuideOne Insurance will raise rates by 12% on average starting this month. Farmers Insurance is increasing rates in Texas by 10% on average. Last month, Allstate started raising rates by 15% in Pennsylvania. And Florida insurer Citizens Property Insurance and North Carolina Farm Bureau are raising rates on some condo and homeowners by 21% and 6%, respectively.


The higher premiums come at a challenging time for American homeowners, as millions are behind on their mortgage payments and many are "underwater."


Insurers say the higher premiums are partly to cover their rising costs: Insured catastrophe losses in the U.S. totaled $35.9 billion in 2011, compared with a 2000-to-2010 average of $23.8 billion, according to the III. The companies are also paying more in premiums to so-called reinsurers, which provide insurers coverage for widespread catastrophic events, says Steven Weisbart, senior vice president and chief economist at the III. (Post continues below.)

Meanwhile, insurers’ returns on their investments -- roughly 70% of their assets are in bonds -- have been low, he says, and they're looking for other ways to make up that lost revenue. "The only other place insurance companies can get money from is premiums," he says.


Typically, when policyholders are informed of premium increases they shop around for better prices, but experts say that's become harder to do. As insurers exit some markets altogether, homeowners are left with fewer companies to choose from. For instance, starting in May, State Farm will not renew roughly 11,000 homeowner policies in five coastal counties in Texas. The company says it's trying to lessen its exposure to future losses.


To lower premiums, some homeowners increase their deductible, which means they'll have to pay more out-of-pocket before their insurance kicks in after a disaster. But this strategy might not be as helpful this time around, because some insurers are dropping other types of coverage that were previously part of basic homeowners insurance policies. When coupled with a high deductible, a homeowner's expenses could soar.


Allstate, for instance, recently introduced a new homeowner's policy in Kansas and Oklahoma that doesn't pay out the full cost of replacing all roofs that incur windstorm or hail damage. Kevin Smith, a company spokesman, says Allstate will determine which roofs qualify based in part on their age and condition. If Allstate declines to pay the full cost, it will pay the current value of that roof and the homeowner will be on the hook for the difference.


The company says the homeowner's other option is to purchase so-called replacement cost coverage for roof losses in addition to the basic policy.


Even if homeowners find a lower premium, it might not stay low for long. Experts say many insurers filed requests with states to raise rates this year. (When states approve higher rates, that leads to higher premiums for policyholders.) For instance, last month, Pennsylvania received requests from Erie Insurance and Travelers to increase premiums by roughly 9% by June and July, respectively, according to the state's insurance department. (The companies didn't respond to requests for comment.)


In Georgia, most of the major companies filed requests to raise rates by 18% to 22%, says Steve Manders, director of insurance product review at the state's department of insurance. The states say they don't usually approve requests for increases of the exact amount insurers ask for.


More on Smart Money and MSN Money:

Mar 9, 2012 5:24PM
Someone please explain to me because this time my elder wisdom isn't working for me.  Just got my annual homeowners insurance bill.  How can the value of my house drop so drastically and my insurance goes skyrocketing the other direction??  I have a $1,000 deductible.  My insurance agent's explanation is the high cost of replacement.  Is this just something else we have to accept?   I've probably only filed one claim in 30 or more years so I certainly haven't  cost the company more than a thousand or so in all those years.  And goodness, it can't be INFLATION.  Bernanke said there is no inflation!
Mar 10, 2012 3:06PM
"Home insurance goes through the roof".  Shhhh... use another metaphor.  If they hear that something went through the roof, they'll raise the rates even more!
Mar 10, 2012 12:57PM
The entire insurance industry is a (FOR PROFIT) rip-off that needs to be regulated and thieves sent to prison. But since they own and control our elected criminals, that won't happen - so believe their lies that place the blame elsewhere and pay more for nothing.
Mar 10, 2012 10:32AM
Because a lot of replacement costs are higher than market price. Arson fires are up!
Mar 11, 2012 8:32PM

It looks like a home is becoming less and less your best investment.  I have been preaching this for years way before the market crash of 2008.  Real estate is a good investment if managed correctly but your primary place of living should never be treated as an investment.  This is where you raise your family in a secure environment.


Insurance is based on the materials to rebuild a home not the view people consider as a market value.  Building material such as lumber and copper are going up in price.  Plus the amount of claims in the last few years have increased in the past few years because of the extreme weather.  So, of course, insurance premiums have increased.  Get over it people the insurance industry is a business.


Elder Wisdom, happy to help answer your question, it's a good one.


A few years ago, when home prices were skyrocketing, insurance replacement cost value did not.  The cost of rebuilding a home went up much less than the market value did.  Nobody complained about replacement cost on the policies, then.


Now that the real estate market is in the tank, the cost of rebuilding a 25 year old home is much higher than the cost of buying a 25 year old home.  The cost to build a new home hasn't dropped, only the land prices have.


Think about it this way:  If your home is destroyed, there is no 25 Year Old Lumber store, wiring store, etc.  You would buy new lumber and wiring, etc to rebuild it.  When rebuilt, you would not have a 1987 home to put on the market, you would now have a 2012 home.


If you don't have a mortgage, there is another choice for you.  You can get a "Market Value" policy and insure it for much less than replacement cost.  This policy wouldn't rebuild your home if it is a total loss.  It would pay the Actual Cash Value of the home (market value) if destroyed.  It woulld not build the home back since it would be insured for much less than it would take to rebuild it.


Hope that helps!

Mar 11, 2012 2:54PM
I've got everyone beat so far. Been in the house for 6 years, home value has dropped $35000. Someone from the insurance came by and took pictures inside and out. Just got be bill Nd the premium increased $1200 or 25%. Wow! What a shock. I should have read this article Thursday that way I would not have been so shocked Friday.

Mar 9, 2012 7:44PM
Insurance companies are looking for more revenue, so they are "adjusting their rates".  Along with requesting certain percentage increases from the States, they also raise the replacement cost of your home so they can jack up their take even more...
Apr 8, 2013 5:13PM
Home insurance goes through the roof- MSN Money : Try this site where you can comapre quotes from different companies:
Mar 12, 2012 10:40AM

Part of the problem is the insurance companies are not watching their cost.  


We had a claim and it took us over a year and a half to get paid.  In the mean time they had to pay for us to live in an apartment with rented furniture.   By the time it was all over we had gone through four adjustors and all of our outer living expenses.  We got smart and hired an attorney before we had to start paying our own living expenses.  We sold the house as is and took the insurance money and purchased a new home with it. 


Just last year we had a very small hail storm in our neighborhood.  I think every roofing company in the state of Texas showed up within a week to start asking for work.  By the time it was over 1/3 of the homes got new roofs.  Hard to believe when you think all of these homes where less then 18 years old and have 30 year roofing products on them.   


Aug 25, 2012 3:42PM
Our townhome insurance went up approximately 50% recently. We've never filed a claim. How do they rationalize this kind of increase ?
StrongAmerican..........I agree with you concerning a home is a place to live and raise your family and not an investment. My comment has always been, "Anyone who purchases a home as an investment has a fool as an investment advisor". When one invests they are always (or should be) evaluating when to take their profit and run. In 2005 I held 6 different real estate investments, one of which was my residence. At the time I determined the real estate market had run it's course and commenced to sell off. My intent was to also sell my residence and rent. However, my wife quickly reminded me of my previous comment. In the mean time I did dispose of 5 properties, for nice gains, and watched my home value drop over $100,000. Yes, I am still happily married!
Mar 12, 2012 5:33PM

Thanks, Wake up and put down the joint.  Your explanation does give me food for thought.

Now, if only my income could keep up.  These 1% interest rates on retirees lifetime savings don't balance out with inflation real well!

May 17, 2013 2:00PM
Building material such as lumber and copper are going up in price.  Plus the amount of claims in the last few years have increased in the past few years because of the extreme weather.  So, of course, insurance premiums have increased.  Get over it people the insurance industry is a business. thanks for this . <b><a href="">salvaged building materials</a></b>
Mar 12, 2012 6:02PM
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