It’s difficult to find any product or service these days that hasn’t been affected by inflation; the cost of your Massachusetts homeowners’ insurance is no exception. Inflation has reached its highest level in decades. In fact, in 2022, the inflation rate in the U.S was 8%, a huge increase over the previous ten years when it averaged only 1.88% (1). Insurance companies consider numerous factors when determining insurance premiums for homes, such as the number of claims a person has and the cost to repair the home. If those factors increase, insurance premiums will likely increase. Due to supply chain issues, home building materials are more expensive and there’s a labor shortage. Unfortunately, these factors mean that the cost to repair or replace your home in the event of a claim has increased, which has increased premiums.
It’s important to fully understand the factors that go into determining your homeowners’ insurance premium, in order to see how inflation affects your Massachusetts homeowners’ insurance rate.
As insurance agents, “Why did my homeowner’s insurance increase?” is probably our most frequently asked question. In order to understand why recent years have brought larger homeowners’ insurance premium increases, it’s important to review the different factors that go into determining the cost of your Massachusetts homeowners’ insurance. It’s also important to ensure you have adequate insurance coverage to rebuild in the event of a claim.
What Factors Determine the Cost of Your Homeowner’s Insurance?
The cost of home insurance is calculated by the insurance companies by taking into consideration numerous characteristics of your home such as:
- How old it is
- The condition of your home
- What materials it’s built from*
- The cost of your home and the cost to rebuild it*
- The size of your home (square footage)
- Home security and safety features
- Any upgrades or special features your home may have
- Your home’s distance from a body of water
- The location of your home and whether it’s a high crime area
- And even your home’s distance to a fire station
There are also factors that are based on the actual insurance selected such as:
- The coverage limits on the policy
- Your deductible
- Any endorsements or additional coverages (such as coverage for jewelry or flood)
- Any eligible discounts and credits you may be entitled to (some of these include new homebuyer credit, discount for bundling your home and auto insurance with the same company, loss free credits and more)
- Whether your homeowner’s insurance covers replacement cost value (RCV) or actual cash value (ACV) can also affect your premium. RCV provides coverage to rebuild a home and replace personal possessions with new ones, while ACV pays out at an item’s current values minus depreciation for the loss of value over time. Replacement Cost coverage will likely increase premiums but provides more financial protection in the event of a covered loss. Your home insurance declarations page shows whether your policy contains ACV or RCV coverage. McSweeney & Ricci recommends insuring your property with replacement cost coverage in order to avoid out of pocket expenses in the event of a claim.
There are also personal and household factors, like the owner’s claims history, that can affect the premium rate.
Why Has my Homeowners Insurance Increased Recently?
- The Cost to Rebuild: Home insurance premiums are based on the cost of rebuilding in the event of a loss. The U.S. has experienced a 50% increase in the cost of building and construction materials including lumber, steel, concrete and copper, due to supply chain delays (2). Even the cost of fuel has increased making it more expensive to get the materials to the jobsite. Since Covid, insurance carriers have had to raise rates because they’ve had to pay much more to settle claims due to the increased cost to rebuild/repair a damaged home. Recently the cost to rebuild is more than insurance company actuaries planned for. So even if you yourself have not filed a claim, insurance companies have to raise rates for everyone to account for their loss ratios. For example, a small claim two years ago might be double the cost to repair this year.
- Worker Shortage: In addition, there is an increase in the cost of skilled construction workers, because there aren’t enough skilled workers to fill the growing demand. The construction industry is down 200K trade workers. (3) With a smaller workforce, rebuilds and repairs take longer and cost more.
What is an Inflation Guard?
The cost of homeowner’s insurance set by the insurance companies typically increases every year. But 2022, as well as the two years following the Covid-19 pandemic, have been anything but typical.
Most home insurance companies have special valuation software that helps them determine home insurance premiums by calculating the cost to rebuild. These cost estimators factor in current labor and material costs in the area where the home is located, square footage of the home and any upgrades or special features of the home.
An inflation guard is included into the dwelling portion of a home policy. An inflation guard can range from 4% to 8% depending on the insurance company. A built-in inflation guard helps make sure that over time when the cost of rebuilding a home or a home’s value increases, that the homeowner isn’t underinsured. However, in times of high inflation like in recent years, the drastic increase in cost of building materials, labor costs and home values has exceeded most inflation guards. This drastic increase in costs, is causing many insurance companies to increase the percentage of the inflation guard which is resulting in higher homeowners’ insurance premiums.
How Can I Save on My Massachusetts Homeowners’ Insurance?
McSweeney & Ricci understands that the increase in the costs of goods and services, including your home insurance can be tough, we feel it too. It’s always our goal to make sure that each client has adequate insurance coverage at competitive rates. To that end we offer the following ways to help you save money on your home insurance:
- Take advantage of any and all discounts that you may qualify for: There are companies that offer credits for being loss free in your home for five or more years, you could potentially save up to 20% for packaging your home and auto insurance together with the same company or take advantage of a discount for installing certain protective devices in your home. Ask your McSweeney & Ricci Account Manager about discounts and credits you may be entitled to.
- Avoid Submitting Small Claims: One of the main factors that affect your premium is your claims history. Submitting small claims will cause you to lose any potential loss free credits and will also increase your premium. Consider whether the impact on your premium will result in a larger cost, than the out-of-pocket expense if you didn’t submit the claim.
- Increase Your Deductible: A higher deductible results in a lower premium. However, it’s important to understand that you could run the risk of paying a higher unknown expense in the event of a loss.
For most people, their home is their largest investment. It’s important to keep it protected with the proper amount and type of Massachusetts homeowners’ insurance. McSweeney & Ricci understands inflation is affecting everyone’s budgets. Our team wants to help our clients understand the reasons behind rate increases, help them save money whenever possible, while ensuring they have adequate coverage in the event of a loss. Your Account Manager will be happy to run a home replacement cost estimate on your property to give you a better idea of what the cost to rebuild your home would be in the event of a loss. We can review your homeowners’ coverage, discuss inflation guards with you and make sure you’re taking advantage of any discounts and credits that you may be entitled to.
With local offices in Braintree and Marshfield, McSweeney & Ricci is your local independent insurance agent. From the South Shore to Boston, thousands of clients depend on us for personalized and affordable insurance options for home insurance, car insurance, renters’ insurance, business insurance and more. Submit for a free quote here on our website, request an appointment, or call (844) 501-1359 and talk to a McSweeney & Ricci Account Manager about Massachusetts home insurance today.
Sources:
- Is Inflation High Compared To Years Past? Breaking Down Inflation Rates By Year (forbes.com)
- High demand for contractors, even though construction is becoming way more expensive | WBUR News
- https://hbi.org/wp-content/uploads/HBI-Construction-Labor-Market-Report4.pdf
