Why is my homeowner's insurance so high?
Recently I received a letter from my insurance carrier saying they would no longer be issuing policies in my area due to it being a coastal region and I would not be renewed. No problem, I thought. I went back and asked for a quote which led to another, which led me to ask for a quote from 7 different companies in order to understand why my rate was SO HIGH! I needed answers and I knew if I needed them that my clients did as well, so I found some.
In this blog I sat down with Perry Stalvey from Perry Insurance Group in North Myrtle Beach to find answers for all of you. Here is what I found.
Me: Perry, thank you so much for being here today. The first question I want to ask is WHY? Why did my $1200 a year homeowner's policy just jump to $3400. Help me understand what is happening.
Perry: Sure! One of the things that you really need to remember, especially in the southeast and coastal areas, insurance companies are basically playing a lottery with Florida. Florida is the big "casino" where all insurance companies make money. If they have 3 or 4 years that are profitable their gains are awesome but if they lose money then it's kinda time to get out. In South Carolina, we are basically their funding game. When they come in and use our premiums to go into Florida, that is how they are trying to be profitable and make money, it's off of our stuff. One of the things that people don't realize is that in South Carolina, with 90% of the companies that we have had in the past 10 years, they've been profitable every single year. But when we see rate increases, it's because they've had losses in other states like Florida, Louisiana, or even California. Hurricanes or places where litigation environments have changed so they are having to ask for rate increases in South Carolina to cover some of their other losses. I know it sounds bad but one of the reasons why we do get such low rates is we have companies that come in and try to use those low rates to fund it. Right now we are suffering the backside of the companies that have suffered losses but 5 or 10 years ago we were part of the benefit of everybody creating all of these new companies, the economy was going good, we were seeing $800 to $900 premiums on beach front property almost and when you think of the big guys like Nationwide, State Farm, Allstate, these companies were never that low. Not in a bad way, they were priced for long term sustainability in the area. Those same policies were $3,000 to $4,000 so we benefited for many years seeing those really low rates because Florida was profitable. Now, Florida is losing rates and losing a little bit of profit so they are trying to recoup it in South Carolina. As a result, everyone is tightening up and it's getting a little more stringent but ideally we go a couple of years and maybe the litigation laws, in Florida particularly, change and we could see a softening of it with more companies coming in, being more aggressive, and offering those competitive rates again.
Me: Okay, so, I am hearing a couple of things that you're saying. One thing that is sticking out big to me is, Florida. You've mentioned Florida a couple of times and we are coastal but we kind of have this benefit of being this tucked in little beach area so a lot of times we are not as heavily affected as these other areas that you mentioned. Would you say that it is fair to look at what has happened in Florida also happens here with our insurance moving forward and now?
Perry: Absolutely! One of the things that I am lucky to say is that I was born and raised in the Grand Strand, I've been here forever. I have seen how hurricanes will skirt our coast and go off. I could be a meteorologist, I swear, but I know what you're talking about. A lot of times if you watch what's going on in Florida, a year or two behind that we will see the same thing. Once again, it's part of the insurance companies playing the lottery again and even if we don't get affected by a hurricane, if they get a major hit, you can tell a couple of years later we are going to see the results of it.
Me: That makes sense to me. Do you think that these rates are here to stay or do you think we will see some sort of relief if we have a coupe of years and we don't have these major storms or do you see them going higher than they are right now?
Perry: I'll give you kind of a multi layered answer. I don't ever foresee us going back to the rates of $800 or $900. I think the market has kind of reset and they have gone to hey, we are at least going to be at this point. Now, the average home that was $1200 that now is $2300, you may see it dip down a little bit if we get some companies whoa re a little more competitive but i don't ever think that we are getting back down to $1200. You may see, especially on new construction, rates dip back down to $1800 or $1900, I don't see that being a problem but I do ever foresee us getting back to the original rate. The big question is what's going to happen in the next year or two. If there are no major hurricanes and nothing major in the environment that changes, I expect the rates to go about 10-15% higher. They know that they can't go that much higher because the Department of Insurance won't let them. When you look at a company that has been profitable 4 or 5 years and they say they need to raise insurance another 30%, the Department of Insurance isn't going to let them. They will to some extent to make sure that they stay in the state but they are not going to let them do crazy stuff so I think you will see a little bit more of an increase but if we can go a few years and the environment is right, I think you will se some companies get created and a few of our big carriers begin to say, Alright, we can be a little more aggressive and kind of offer that competitive rate again. Right now we are even seeing the large carriers tighten up on auto insurance and saying, look, unless we have the bundles we're not even offering rates on some things. So, we need some good things to go on in Florida and kind of the insurance environment in general to have everybody be a little more competitive.
Me: Yeah, I'd say. So really what I am hearing is settle in because this is the environment we are in right now and this is kind of what you are going to have to get used to.
Perry: Absolutely. I would say, plan for the worst but there is hope out there. I don't want to be doom and gloom, like this is the worst case scenario, but I do think there is some good stuff coming but it's just going to be a little bit of a process to get here. There are some rumblings of companies trying to come in working with legislators and the South Carolina Department of Insurance is great on encouraging companies to come here. The more we can get to come here, the more competition we will get and the better the environment will be. I just think a lot of companies are sitting and holding, waiting for this hurricane season and then you may see December, January, February, some new companies starting to pop in which would be good news for us.
Me: Absolutely. Thank you Perry!
Okay, so now that we know why, we need to figure out how we can work with this both as homeowners and potential homebuyers. Here are some ways that you can save money on your premiums and still have the coverage you need.
1. Make sure that you shop around and let your insurance agent know that as well. You can always bring the declarations page back to them and see if they can match it and also just to compare the coverages. The reason rates may vary is usually due to the coverage amounts, deductibles, and sometimes coverage that isn't necessarily needed.
2. Raise your deductible. It is appealing to have a very low deductible so you can save that money out of pocket. However, most claims fall between $1000 and $5000. the more claims that are filed in an area, the more likely it is for rates to climb. If you can set back $5,000 to use rather than filing a claim or as your deductible if you need it for something more than that amount, you can save a lot of money on your yearly premium. This will also keep you house payment down if you escrow.
3. Review your coverage. Make sure that the replacement costs are accurate and talk to your insurance agent to see if there is anything that can be realistically reduced.
4. Don't forget about wind and hail! Some carriers won't include this coverage. Without it, you are not covered for any type of wind damage, hail damage, or hurricane damage. if you get a quote back in a coastal area that is $800, chances are you have no wind and hail coverage.
5. If you escrow your taxes and insurance, meaning they are part of your mortgage payment, you should be given the option to pay the difference in your escrow account if you don't want your house payment to increase.
This may not be the answer you were hoping to hear but at least you can go in prepared now and you won't be shocked by your rate. Stay tuned for Part 2 where we discuss Condo Insurance and Assessments. For anyone thinking of purchasing a condo, you won't want to miss it!