Thanks to Mother Nature, cost to insure a home continues to climb
Downtown New Brunswick, N.J., can be see near the overflowing Raritan River, Sunday, Aug. 28, 2011, as heavy rains left by Hurricane Irene are causing inland flooding of rivers and streams. (AP Photo/Mel Evans)
This satellite image provided by NOAA and taken at 12:45 GMT Friday Aug. 26, 2011 shows Hurricane Irene as it moves northward along the U.S. eastern coastline with 110 mph sustained winds. Hurricane Irene began lashing the East Coast with rain Friday ahead of a weekend of violent weather that was almost certain to heap punishment on a vast stretch of shoreline from the Carolinas to Massachusetts. (AP Photo/NOAA)
Local insurance agents are accustomed to their phones ringing wildly after major storms, but such calls are coming more frequently these days as Mother Nature’s wrath hits homeowners squarely in another place: the pocketbook.
Put simply, it costs more to insure a home today than it ever has before.
“Premiums are definitely creeping up, and it’s all weather-driven,” said Jill C. Lesko, president of King & Cushman Insurance in Northampton. “Somebody has to pay for it.”
In the wake of a string of crippling weather events — tornados, blizzards, hurricanes and others — insurance companies have paid out more in damage claims in the last two years than they did in the previous decade.
Insured catastrophe losses in the United States totaled $35.9 billion in 2011, compared to a 2000 to 2010 average of $23.8 billion, according to the Insurance Information Institute.
Additionally, the Institute reports that the federal government provided relief to 99 federal disasters in 2011, nearly twice the number of annual disasters over a 14-year period that ended in 2010.
“The storms are wiping them out,” Leah Gay, an agent at Bresnahan Insurance in Holyoke and Amherst, said of insurers nationwide. “These are huge losses that the companies now have to recoup for.”
While it’s difficult to estimate exactly how much those losses are actually coming out of homeowners’ pockets, most local agents interviewed agree that homeowners have seen annual increases of between 5 percent and 10 percent over the last couple years.
That’s a spike that homeowners are definitely noticing, even though many companies are staggering the increase over several years to lessen the sticker shock for policy holders, Lesko said.
According to Insurance Information Institute, homeowner insurance premiums jumped 5 percent last year and 4 percent in 2011, marking the first time the national average premium is above $1,000.
This increase is offsetting for losses in the Valley and beyond. Gay points out that insurance companies provide coverage over wide territories, which means storms that cause severe damage elsewhere still play a role in what the companies pay out and eventually need to recover from their entire customer base.
While there are several ways to lower premiums (see related story), many homeowners are increasing their deductibles. That means they’ll have to pay more out of pocket if disaster strikes, or see the amount of their claims drop.
But because most homeowners file claims infrequently, a higher deductible is an option for property owners concerned about their monthly bill, said Jo Anne Finck, co-owner of Finck & Perras Insurance Agency in Northampton and Easthampton.
Agents report that many customers are increasing deductibles to $1,000, up from $500. Past policies that allowed homeowners to have deductibles as low as $100 or $250 are fading away, Finck said.
“Deductibles are one of the best ways for people to save money,” Finck said.
While this tactic can be effective, experts caution that homeowners should only do so if they are sure they can cover the deductible if they need to file a claim.
Finck said that insurers haven’t really changed what they cover as a result of the recent storms, but the disasters have made people more aware of what their policies will and won’t cover.
“Consumers are becoming more self-aware of what they have,” she said. “Companies have always offered these products but many people felt they would never need it or use it.”
Finck encourages homeowners to examine their policies, which could lead to decisions to increaase coverage. She said noted that many homoeowners fear such changes would add to overall costs, but that is not always the case.
“There are things we can do to offset the costs,” Finck said.
Michael Banas, of Banas and Fickert Insurance Agency in Easthampton, agrees that people are more aware today than in the past, and that homeowners should review their policies annually.
“Every year before they pay the bill, they should be checking what they are paying for,” Banas said.
Most homeowners don’t do this, according to a recent survey by Consumer Reports. The average homeowner files a claim only once every six years, and many policyholders don’t read the disclosures, renewal contracts and updates that insurers send them, the survey found.
When reviewing policies, homeowners should ensure that they have enough coverage in place. Consumer Reports also found people lacking in this area, as one in 10 who filed claims found themselves underinsured.
“It’s terrible to be underinsured and not even know about it,” Banas said.
A standard homeowners insurance policy includes coverage for a home and personal belongings, liability protection, and additional living expenses for when fires and other events force people from their homes.
In general, the policy is intended to put homeowners in the same position they were in prior to the catastrophe, whether the house is a total or partial loss.
A home’s insured value, or replacement cost, should equal the cost in labor and materials to rebuild from scratch, generally not including the foundation. That’s not the same as the market value, which includes the cost of the land.
The first step in getting adequate coverage is to establish a home’s “dwelling limit” that gets as close to the full replacement cost of a home and its possessions as possible.
Insurers and agents also provide such service to determine the dwelling limit, including an on-site visit.
Homeowners who live in areas prone to flood and earthquakes should consider adding coverage for those events to their plans. Such coverage is not included in a standard policy. Nor are other add-ons, called endorsements, such as coverage for computers, oil remediation, food spoilage, mold, water and sewer backup and lock replacement.
These are all areas that homeowners should consider depending on where they live and what their needs are, experts agree.
Homeowners are also encouraged to document their possessions with a detailed inventory and photographs of everything that has value. This will help ensure the right amount and type of coverage. There are online tools that can help with this process.