Why Homeowners Insurance is Getting More Expensive
What’s behind the rising cost of insuring your home?
The cost of insuring a home or renewing an existing policy is giving homeowners sticker shock. Haven’t looked at your rates lately? You might be in for a surprise when you do.
An analysis of data from the Texas Department of Insurance shows rates in Texas rose almost 11% in 2022,1 the biggest annual jump since 2012. Average premiums increased 59.2% over that same period and were up 19.5% from 2020 to 2022.2
In Texas, insurance rate increases must be approved by the Texas Department of Insurance.3 Approved home insurance rates have increased4 between 20% and 30% since January 2022. This is true not only in Texas5 but also in Oregon, Utah, Arizona, Illinois and North Carolina.
Coupled with the increasing cost of insuring a home, in some places it’s becoming harder to even get coverage. And some insurance companies are covering less.
Homeowners insurance is an important investment, since it offers financial protection against damages caused by something covered in the policy, like fire or storm damage. Let’s examine what’s behind the rate increases.
Material and labor costs
Insurance is designed to pay for replacing or repairing something that is damaged or lost. That means home insurance isn’t based on the market value of a home, but on the cost of repairing or rebuilding it.
Construction material costs have risen sharply due to inflation and disruptions to the supply chain that began during the COVID-19 pandemic. Associated Builders and Contractors, a national construction industry trade association representing more than 22,000 members, reports that construction materials cost is 37.7% higher6 than it was pre-pandemic.
Breaking the increase down by year, the National Association of Home Builders7 reports that building material prices increased 18.9% in 2021 alone. The increase in 2022 was 8.3%, which was not as high as the year prior but still a bigger jump than in years past.
Those increases mean not only does it cost more to repair or rebuild a home, but the cost to build a new home has also increased.
Labor costs and shortages are impacting the construction industry. Damage cleanup and rebuilding requires workers to tackle the task. The shortage of construction workers and skilled labor — as well as the rising costs of food and housing — have increased wages and labor rates, making construction more expensive overall.
Another side effect resulting from supply chain disruptions and the construction labor shortage? Delayed project start times and inefficient, protracted timelines can make it harder for people to rebuild. And there is the added cost insurers may pay to provide temporary housing for displaced homeowners.
All these factors are driving up the cost of homeowners insurance. According to the insurance industry, rebuilding and replacement costs increased 55%8 between 2019 and 2022, forcing insurers to raise their rates to accommodate their higher costs.
Insurance companies want and need the same financial protection that homeowners do, so they need insurance, too. And for that, they turn to reinsurance companies. Reinsurance allows insurance companies to limit their risk and the amount of capital they keep on hand.
But due to inflation and the high number of catastrophic loss events in recent years, reinsurers have suffered steep losses and are raising their rates as well. In fact, reinsurance rates have increased between 30% and 50%,9 so insurance companies themselves are paying for their own coverage — and analysts expect that trend to continue.10
Those seemingly ever-increasing costs contribute to increased homeowners insurance rates.
Obviously, natural disasters can prove costly for insurance companies. These catastrophic loss events incur cleanup costs, as well as rebuilding and replacement costs. Natural disasters have happened with increased frequency over the last few years, leading to significant losses for homeowners and insurers alike.
According to the National Centers for Environmental Information,11 there have been more than 371 — and counting — weather and climate disasters since 1980, each resulting in damages that reached or exceeded $1 billion dollars. That includes drought, flooding, freezes, severe storms, tropical cyclones, wildfires and winter storms.
Between January 2020 and August 2023, there were 75 separate weather and climate events each resulting in more than $1 billion in damages (CPI-Adjusted).12 The 2021 winter storm that paralyzed much of Texas? It resulted in billions of dollars of property damage — and it’s only one of many high impact weather-related events to hit the state in recent years. To make up for the losses and prepare for more weather and climate events, insurance companies are charging more.
Some homeowners aren't just being hit with higher rates, either. In areas that have experienced costly catastrophic events, insurance may be harder to get in the first place. Major insurance companies have stopped offering homeowners insurance policies in some areas because allowed rates are not high enough to cover the expense of rebuilding or replacing. States where it can be difficult to get property insurance13 include Texas — as well as California, Florida, Colorado, Louisiana and New York.
The combination of increased material and labor costs, the high cost of reinsurance and natural disasters have created the proverbial perfect storm for the insurance industry. Insurance companies are charging higher rates and offering less coverage to make up for the losses incurred in recent years — and ensure they are properly covering homeowners’ insurance needs. Again, all that translates into higher homeowners insurance rates for consumers.
What can you do as a consumer? Stay informed about forces driving rates while also ensuring that you have the proper coverage to protect your home and family.
Last updated January 2024
Information in this article is general in nature and for your consideration, not as financial advice. Please contact your own financial professionals regarding your specific needs before taking any action based upon this information.
RBFCU Insurance Agency LLC is a wholly-owned subsidiary of RBFCU Services LLC. RBFCU Services LLC is affiliated with Randolph-Brooks Federal Credit Union (RBFCU). Insurance products are not deposits; are not obligations of the credit union; not NCUA insured; and not guaranteed by RBFCU Insurance Agency LLC, RBFCU Services LLC or RBFCU.
RBFCU Insurance Agency is an independent insurance agency. It is the role of the RBFCU Insurance Agent to obtain quotes from multiple carriers and offer comparisons to determine adequate insurance coverage.
Insurance coverage, discounts and other features are subject to individual eligibility and availability.
The following sources were last accessed December 2023.
1,2Iszler, Madison. “Homeowners Insurance Rates Jumped 11% in Texas Last Year and Premiums are Soaring. Here’s Why.” Expressnews.com, https://www.expressnews.com/business/article/texas-home-insurance-premiums-18338370.php.
3“Property and Casualty Rate Reviews.” Texas Department of Insurance, https://www.tdi.texas.gov/reports/pc/property-casualty-rate-review-report.html.
4,5,13"Texas Homeowners Insurance Premiums Rising.” Axios.com, https://www.axios.com/local/dallas/2023/08/03/texas-homeowners-insurance-premiums-rising.
6"ABC: Construction Materials Prices Rise 1% in January; Up 5% From a Year Ago.” ABC.org, https://www.abc.org/News-Media/News-Releases/abc-construction-materials-prices-rise-1-in-january-up-5-from-a-year-ago.
7“Building Materials Price Growth Slowed 60% in 2022.” Nahb.org, https://www.nahb.org/blog/2023/01/building-materials-price-growth-slows-in-2022.
8Isidore, Chris, and Ella Nilsen. “Why It’s Becoming Harder and More Expensive to Get Homeowners Insurance.” CNN.com, June 2023, https://www.cnn.com/2023/06/19/business/homeowners-insurance-more-expensive-climate/index.html.
9“U.S. Property Catastrophe Reinsurance Rates Rise up to 50% on July 1, Report Says.” Reuters.com, 3 July 2023, https://www.reuters.com/world/us/us-property-catastrophe-reinsurance-rates-rise-up-50-july-1-report-2023-07-03/.
10“Reinsurance Rates to Rise in 2024, Soften in 2025, Fitch Analyst Says.” Reuters.com, 7 Sept. 2023, https://www.reuters.com/business/reinsurance-rates-rise-2024-soften-2025-fitch-analyst-2023-09-07/.
11,12“Billion-Dollar Weather and Climate Disasters.” Nceia.noaa.gov, https://www.ncei.noaa.gov/access/billions/.