Why your home insurance premium has increased so much and how to get it down

I have previously done posts on making sure that you negotiate your car insurance down as insurance companies often try and gouge customers around renewal time and offer much better deals to those who are actively shopping around.  The same is true for home insurance In fact they often have different pricing schedules for those that are existing customers and those that are new customers.

This post will deal with home insurance and why your insurance premium may have increased by so much in the past year.  If you have asked the question 'Why is my home insurance so much more expensive this year?' then this post could be for you.

What is your home insurance based on

Insurance premiums are statistical equations with a price attached to every piece of information that the insurer can get off you.  This is why those online quotes require so much information from you - it is so that the insurer can estimate the probability of loss on your account and thus price your policy so they can make a profit.  Thus with home insurance it is influenced by the following factors

• The area the house is in (is it subject to flooding, fires, high theft area etc)
• The owners themselves - how likely are they to claim, what is their history like
• The security precautions the house has in place
• The amount the house is insured for
• The amount the contents are insured for

There are lots of other factors beside these and insurance companies have statistical models for all of them  (e.g. their models will tell them whether houses in courts more or less likely to get robbed than those on busy streets etc.)

Nothing has changed since last year - so why has my home insurance premium increased by so much?

This is the thing that puzzles most of us out there who buy insurance.  We didn't claim over the year, our circumstances haven't changed nor has the area we lived in changed substantially - so why has my premium increased by 20 - 30% over the year?

The answer comes down to a few factors which I have listed below:

• Natural inflation type factors
• Prices naturally increase from year to year so there should always be some element of price increase between years
• This should be around the rate of inflation but will often run at wage inflation as insurance companies probably figure that if people are paying the same proportion of their income in insurance they will not object too much
• Thus an increase of 2 - 3% should be expected
• The amount your property is covered for
• This is a sneaky thing that the insurance companies do although they state it very clearly but most of us ignore it
• On your insurance renewal form you will notice that every year the suggested coverage increases significantly.  For a house it really should not increase more than inflation or slightly above that (i.e. by about ~4% per year) but if you get out your old policy renewal documents you will see that insurers try and increase the coverage by a lot more than that every year
• My insurer over the last 2 years has increased my coverage by 12% per year.  2 years ago I did a detailed estimate of what it would cost to fully replace my house and I estimated that it would cost $250,000.  The insurer is suggesting that 2 years later that this has increased to $311,000.  I do not think that the cost of replacing my house has changed that much
• If the insurer has made large losses in some areas they may seek to recover the cost across their whole book
• You will notice this particularly if there has been a natural disaster in one part of the country, insurers will increase the prices for all homes etc across the country to try and compensate
• Unfortunately there is not a lot you can do about this.

Can I do anything to keep my premium down?

Yes there are a few things you can do to keep it down but you should keep in mind that you will never be able to keep it at the same price.  Things you can do include:

• Limit the amount your insurance cover increases
• If you decrease it from a 12% increase to something like 5% your insurance premium should come down
• Be careful that you are not under-insuring your property.  You need to make a call on how much you think it would cost to replace your house every year just to make sure that you have sufficient cover.
• Never keep the coverage flat because prices really do increase from year to year so your coverage needs to increase in line with this
• Negotiate hard with your insurer
• See my previous post on car insurance for tips on how to do this
• You need to make sure that they do not assume that they are going to get your business back.  Customer churn is expensive for insurers and most of the time they will relent and take hundreds of dollars off your premium
• Make sure that you have real quotes from other insurers to back you up when you are arguing for a reduced premium.  Yes this does involve effort but you never get something for nothing.
• If your insurer refuses to budge then move to another insurer which offers the same service - do not feel obligated to stay with the same one.
• Unfortunately there is nothing you can do if insurers are trying to recoup their costs from large environmental disasters etc as all the insurers in the industry are likely to be putting up their prices.