Your rate for home insurance is probably identical to last year's rate... Confused yet? You might be wondering why your total premium for home insurance changed then.
In Ohio, home insurance pricing is very stable right now. Most companies are very confident that the rates they are charging are close to perfect and there is very little pressure on them to change those rates. So if the rate is the same, why is the price so different?
Great question! The answer requires a closer look at what your policy does for you. Your policy pays for a lot things that cause damage to your home. When you have a claim for that damage, the adjuster arranges to pay someone that you hire to do the work and fix the damage. Here's where the zinger comes in-- the cost of the building materials are typically 50% to 75% of the total cost.
Lets dig a little deeper still. Since March of 2016, lumber costs alone are up 12.9%! To compound this increase, that number was published in April 2017 which is well before the recent hurricane season. For this reason, it is quite likely that building materials will continue to increase in the coming months.
If you glance at the pie chart, you'll see where this cost fits in the grand scheme. This is very general but most insurance companies try to follow a similar template. The 60% for losses is the amount of damage you will experience. Statistics tell us that so this number tends to be very static from company to company. We can consider that the "cost" of your coverage. It is that number (60% of your premium dollar) that is being pressured by the increased cost of building materials. Are you ready for some intense math (Oh no!!! Math!!?)?
When the $0.60 of every $1.00 that you pay for insurance is used for damage, and roughly 50% (or $0.30) of the $0.60 is the materials, that gives you about $0.30 of every dollar that you pay that is basically budgeted for the building materials that they'll need to buy for your damage. Now that number has just experienced a 13% (or roughly $0.04) increase in cost. The rate is the same but now you need $0.04 more insurance for the increase in cost of building materials.
Finally, we need to add to it one more influential factor that is unavoidable. Inflation increases the cost of everything around us by 2% every single year. When you sum the 4% for the building materials and the 2% for everything else, there you have it... Your rate might have stayed exactly the same but the cost (the amount of the insurance provided) has increased by roughly 6%.
We genuinely hope that this explanation helps you with a better understanding of your property insurance. If you have concerns and want to understand your options, please reach out to one of our experienced agents.