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Why do Insurance rates keep rising?

As a homeowner, insurance is something you typically do not think of too often. When you purchase a home the insurance is there as part of the bundle that includes your monthly mortgage and tax payments. Odds are that you don’t think about it again until it is needed or you get a letter stating that a rate increase is coming your way. One of those letters may be coming for each of us. Your homeowners insurance cost is probably going to be on the rise. Again.

There are a number of factors that force homeowners insurance rates to escalate and here in Florida we have a perfect storm colluding to do just that. Here is a list of some of the things that have happened that influence an expected increase.

· Reinsurance. Reinsurance is what the insurance companies use so that they can pay claims in the event of a major hurricane or other catastrophe, and, says Kevin McCarty, Florida Insurance Commissioner, “In a time when reinsurance rates are dropping, an insurance company may choose to purchase more reinsurance.” Those rates had been artificially suppressed for years after the hurricane season of 2004-2005.

· The FL Hurricane fund. Average rates from the Florida Hurricane Catastrophe Fund—from which each insurer is required by law to purchase reinsurance—have gone up.

· Sinkholes. It seems they have been all over the news, first at the resort in Southwest Orlando and then a home in Seminole county. In 2008 Citizens (the state run insurer) collected just $191 million in premium but paid $1.2 billion in sinkhole claims. They want to recover some of that and be better prepared for the future.

· Construction Costs are Rising. With the market stabilizing and construction in full swing, materials and labor are more expensive than in recent years. There is a big difference between labor and skilled labor in the work force and skilled labor is costly. You may be asking what that has to do with insurance. With the cost to rebuild after a claim higher, the insurance company absorbs more costs and those get passed on to…You.

There are a number of other reasons that FL homeowners will be able to look to for the increase but these are at the root of the issue. Any way you cut it, prices are going to increase. Make sure to tune in next week for some tips on what you can do to lower your rates as much as possible.

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