One of the most confusing things, as a homeowner, is to be notified that your homeowner’s insurance premium is increasing. You haven't made any claims or missed payments, and the coverage hasn't changed, but your premium is still going up.
This is one of the most common consumer questions as it relates to home insurance. In this article, we hope to add some clarity to the potential reasons your home insurance rate keeps going up, and provide some tips to help you combat this issue.
Your personal claims history plays a role in calculating your insurance rate – but what you may not know is that the insurance companies also evaluate their own company’s claims experience and history. They make predictions for the likelihood of potential claims activity in each year, and use this information to calculate premiums.
The reason for this is that insurance companies need to confirm that they will have sufficient funds to pay out to their customers for claims. When you purchase a policy, the insurance company puts your money, and those of its other customers into a pool. The funds from this pool are used to help persons who experience damage to their homes, and need to make a claim during the year. Insurance companies calculate premiums based on how likely it is that their customers will experience a claim, and therefore withdraw from the pool.
The other factors that may play a role in your premium hike are listed below:
Worsening weather conditions
Climate change has resulted in an increase of severe weather -- for us this means more frequent and intense rain, snow and winds that increase the potential for damage to our properties. According to the Insurance Bureau of Canada (IBC), the average annual economic cost of weather disasters has increased by 600% since the 1980s. The Fort McMurray wildfire contributed to making 2016 the "worst year on record for catastrophic losses", according to the IBC. The Canadian government is predicting that the cost of natural disasters will cost almost $1 billion annually by 2021, which is only three years away.
Your location may not have changed, but your neighborhood’s risk to weather-related events, such as flooding or fire may have increased. Insurers have to take these risks into account when they determine your policy each year.
Another way that your location could affect your premium is if building costs have increased in your local community. The estimated cost to rebuild your home is one of the factors insurers use to determine your premium. Your home’s building replacement cost can be calculated by multiplying the square footage of your home by the cost of building. Upgrades, such as hardwood floors, are also taken into account.
Homeowners are increasingly finding new ways to [re]purpose their basements. Basements, that a few decades ago, were being used as simple recreational rooms, are now being renovated to become usable space in the form of home theaters, apartments or other living areas. However, homeowners do not always take into account that this area is typically more vulnerable to flooding. As a result, the potential for damage, and subsequently the potential for costly claims are increased. When your contents cost more to replace, so will your insurance.
Aging Buildings and Infrastructure
As your home gets older, it becomes more prone to issues such as sewage back-ups, basement flooding, and roof damage. The same applies to your electrical, and heating and cooling systems.
Are you finding yourself paying too much for home insurance? Shop around and compare your rate
Shopping your rate around with different insurers can ensure that you are paying the best rate for the coverage you need. But, it can be time intensive, and overwhelming to do this each year on your own. As an insurance broker with more than 12 insurer partners, A.P. Reid can do the comparison work for you to make sure you’re getting the best rate. Start by getting a quote online through our quick and easy quoting tool, and our licensed and experienced brokers will contact you to get additional information, which may result in discounts.
Aside from shopping around, there are things you can do to that can contribute to a lower rate. We’ve included these details in our article “8 things you probably didn't know could lower your home insurance premium”