January 26th, 2012

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Why Colorado Home Insurance premiums are going up and why being Independent is better.

This year will prove to be an interesting hurdle for Home Insurance in the state of Colorado. Higher rates, and changes to coverages will begin to occur if they have not already. Why is this happening?
Here in Colorado we have seen tremendous pressure on home insurance premiums from devastating storms, a poor financial market, increased policy coverages and a long run of insurance companies resisting premium increases to keep or gain market share.
Lets break these down further.

1. Hail losses: 2009 and 2010 were severe loss years for Hail and Wind in Colorado. If it wasn’t hailing in your neighborhood, it was hailing in others. Hundreds of millions of dollars were paid for wind and hail claims and insurance companies paid to replace a significant portion of roofs in the Denver area.
2. Poor Financial Market: Typically insurance companies can run loss ratios a bit higher than they would like and offset their loss with revenues generated from investments. We are all aware that investment returns since 2008 have ranged from poor to horrible which results in a negative impact on shareholders, investors and ultimately insureds.
3. Policy Coverages: Over the years companies have added more and more coverage on home policies including coverages for identity theft, sewer backup, frozen plumbing, increased coverages on jewelry etc. Because home insurance policies cover more, they also pay more in claims creating more pressure for higher premiums.
4. Lower premiums: For insurance companies, there is a standard market premium that in theory is what an insurance company should charge for each home. Increased competition between insurance companies and efforts to keep or gain market share have kept downward pressure on insurance premiums even while huge claim payouts have put upward pressure on that standard market premium. The result has been home insurance rates below the increasing standard market premium but that is unsustainable.
So what can you expect and what can you do about it?
First things first, home premiums are going up! Yep. No question. Around 20 to 40% for some carriers. So if you were paying $1,000 for home insurance, expect a $200 to $400 increase within 12 to 24 months. So, with this in mind, my suggestion would be to discuss higher deductibles and look to consolidate your auto or rental properties with the same carrier. The more you bundle, the better.
One idea that not many people know about is you can re-rate your home insurance with the same carrier. Why? If your credit has improved (or gotten worse), your rate can be adjusted. Talk with your agent about re quoting with the same home carrier if you feel confident your credit score has improved.
Do not put your auto with one carrier and your home with another. Consolidate!
Will this end soon? The answer is no. Insurance companies are only allowed to increase premiums with the insurance commissioner at set times and at set amounts so they must increase premiums slowly over an extended period of time. Also, can we expect more hail to hit Colorado? If you have lived here longer than 12 months, you know the answer is yes. And with the above negative impacts, will the home insurance carrier be able to get the premium profitable soon? I doubt it.
Information from your credit report also affects your insurance rates. As an independent agency we represent many companies so, if your credit is not great or you have claims, we have options. Sometimes your current insurance company is the one that’s best for you but CALL US to make sure.