We talk with a lot of home insurance customers on a daily basis.
One common question we get is… Why?
“Why did my renewal premium go up?”
Why did my home insurance premium go up when I didn’t make any claims?
The answer is there could be a few things at work here.
Its never a simple reason.
After a discussion and review of your current insurance plan,
we can start to uncover the reason(s) you received a rate increase on your home insurance policy.
When you initially get another rate increase, your first reaction is
“I want to switch to another insurance company”
Before you jump ship and move your homeowners insurance,
you should consider a few factors
1. INFLATION GUARD ENDORSEMENT
All homeowners policies have an inflation guard endorsement built into the policy.
The increase could be a standard 1-3% increase of all coverage amounts at renewal.
100,000 Dwelling A
10,000 Coverage B other structures
50,000 Coverage C your personal property
At renewal, if your insurance company has a 3% inflation guard endorsement,
the insured values on your policy would increase causing an increase
New policy amount
103,000 Dwelling value
10,300 Other Structures
51,500 Personal Property
That is not a large increase but what if you were insured with the same company for 10 years?
That would equal a 30% increase in value and a 30% increase in premium since policy inception.
What is an inflation guard endorsement?
The reason this endorsement exists is an attempt to keep up with rising home construction costs.
The insured value of your home is based on the cost it takes you to hire a contractor to rebuild your house.
It has nothing to do with property values going up or down in your neighborhood.
The cost of a 2×4 piece of lumber has no bearing on your neighborhood resale value.
Building materials go up in value and so goes the cost to rebuild your house
Can I remove the inflation guard endorsement?
No you can’t.
But you and your agent can determine the estimated replacement cost of your house.
If you own a 2000 square foot house and your insured value has increased to 300,000 due to an inflation guard endorsement,
it may be time to run a replacement cost estimator or have a home builder give you an indication of the current replacement cost of your house.
Homeowner: “I have a 2000 square foot two story brick house. Can you give me a ballpark figure of the price per square foot to rebuild?”
Contractor: “$125-$135 price/square foot”
That gives you a ($125 x 2000 sq ft = $250,000)
You can now request a reduction of your insured replacement cost to 250,000 instead of 300,000.
You only want to do this if you believe you can rebuild your 2000 square foot house for 250,000
2. YOU RECEIVED A RATE INCREASE
All insurance companies will take a rate increase at some time.
We are seeing new homeowners insurance companies coming into Louisiana from Florida.
Some are undercutting the market and offering low unsustainable rates in some areas.
Most insurance companies have investors and they need to make investors happy so
they are trying to gain market share in our area.
It is only a matter of time before they take a rate increase.
If you receive a rate increase on your renewal,
you need to determine the percentage of increase to see if it is a sign of troubled times ahead.
If over 25%, something is wrong.
You renewal should never jump 25% at renewal.
If it did there are some possibilities at work here
- your policy was initially rated incorrectly
- your insured value may have been too low at inception and the company is raising the insured value to meet the current replacement cost of your house
- the company is losing money in your area and either did not properly rate your area or they are taking heavy losses and need to take action
- they are trying to get out of your area and either leave your zip code or leave Louisiana
- something happened to your credit score since policy inception and the company ran your credit again and it went up
If your rate increased due to an adverse condition on your credit report, you need to get a copy and review it.
To get a free credit report, try
No credit card required
If the rate increase is 1%-10%,
this may not be cause for concern or a reason to jump to another homeowners company
Like I said all homeowners insurance companies will take a rate increase at some point.
One question you want to consider when getting a quote is
When was the last rate increase for the company?
If the agent says “never”, more than likely that company is offering introductory rates and only a matter of time before they take a rate increase.
In New Orleans basically all the major, long standing insurance companies that you know by name because you see their insurance commercials on tv or your parents have insurance with them, no longer write new homeowners insurance policies including wind under their own name or brand.
They either purchased a surplus lines company or they partner with another much smaller insurance company and push you to that company.
If the majors don’t offer homeowners insurance, what makes you believe that the insurance companies writing new policies are going to come into Louisiana and be profitable and never raise rates?
Rate increases are going to happen.
If you want to get on the merry go round and requote and rewrite your home insurance every year,
you can, but that is not a fun process.
As an independent insurance agency, FM Agency Group can offer you more than one homeowners insurance option, so we can make the process of moving you to a new insurance company much easier.
Do we want you to move to a new homeowners insurance company every year?
Not all insurance companies are the same.
Not all homeowners insurance companies in our agency are the same.
We know which companies pay claims.
Which companies have rate stability.
Which companies just took a rate increase.
Which companies may disappear after the next Hurricane Katrina.
Jumping from Company A to Company B to Company C to save 8% on your renewal is not something you want to do every year.
But sometimes an insurance company will raise rates beyond your comfort level.
Go ahead and make the switch but don’t forget it is possible the new company you are going with can raise their rates at renewal too.
So if you are ready to make the move and switch,
just consider a few more things
Review all available discounts with your current insurance company.
Maybe some things have changed from the initial purchase of the policy.
Did you get a new roof? (discount)
Did you purchase your auto and umbrella with the insurance agency? (discounts)
Did you purchase a monitored burglar and fire alarm? (discounts)
Did you purchase your flood insurance with your current insurance agency? (discount)
New discounts are being introduced by homeowners insurance company every day.
Insurance underwriters are trying to retain more customers without having to lower their rates.
They are offering more discounts on a policy than ever before.
It is very possible you may be leaving discounts on the table that you are either unaware of or they are brand new offerings.
Ask your insurance agent about any new discounts being offered before you just switch.
What is the #1 reason to move your homeowners insurance today to another company?
Check your hurricane or named storm deductible.
Is it 5%?
If so, it is time to move to another insurance company.
We have seen hurricane deductibles as low as $1,000 is some areas.
You should not have a 5% hurricane or named storm deductible on your policy in our current homeowners insurance market.
What is a 5% Hurricane or Named storm deductible?
You have a 250,000 house.
Your deductible would be 5% of 250,000 so on the next hurricane or named storm that hits our area,
the insurance company would deduct $12,500 from the claim check.
If you a have wind/hail deductible, the 5% deductible of $12,500 would be deducted on any wind or hail event regardless if the event was named (tropical storm or hurricane)
What’s this all about?
FIND YOURSELF A TRUSTED INSURANCE ADVISOR
I wish all insurance agents in our area were trusted insurance advisors.
They are not.
Some are quote pimps.
Some will chase the lowest possible rate by cutting coverages and do anything they need to do to make their quote lower than your current policy.
When this happens, you lose.
We’ve seen some agents, offer owner occupied dwelling policies instead of a homeowners policy to be more competitive.
This is bad.
You lose important coverage when this happens.
You will lose replacement cost on your contents (depreciation)
Say goodbye to theft coverage on your contents (your personal property)
Busted pipe under slab and water backs up into the house?
Water Back Up not covered.
Here are some phrases to know to determine when you are NOT talking to a trusted insurance advisor
“You don’t need those coverages”
“You don’t need Uninsured Motorists coverage”
“100/300 limits is enough on your auto insurance”
“100,000 liability limit is all you need on your homeowners insurance”
“Replacement Cost on contents? You have new stuff. You don’t need replacement cost”
“You don’t need an Umbrella Policy“
Not all homeowners insurance companies are the same.
Not all insurance agents are the same.
“What if I just buy direct from the insurance company?”
You can do that but you just lost the most valuable free resource available to you today.
The trusted insurance advisor on your side.
When you buy direct from the insurance company,
you are on your own when you have a claim.
You have no one to help you.
You have no one to ask “what if” questions such as
“Should I turn in this claim?”
“Will my rates go up if I do?”
“If the insurance company cancels me, do you have another company we can go to?”
You can’t talk to your insurance company representative and ask these questions and receive an objective opinion.
You are talking to the company employee.
What should you do?
Find yourself a trusted independent insurance advisor that can offer you more than one homeowners insurance company proposal when you are considering moving to a new insurance company.
Get a few home insurance quote proposals and ask a few simple questions that the agent can answer….
Has the insurance company ever taken a rate increase?
How long have they been writing new policies in our area?
How is the company claims service?
Are they an admitted insurance company or a surplus lines insurance company?
Are they A rated by AM Best or Demotech?
If you are ready for a conversation about your homeowners insurance needs,
we are here to help.
If you are not sure you have a homeowners insurance problem,
take our quick 4 question survey