After a record year of devastating storms this raises a very big question. “How this will affect my insurance rates?”
There are many of you out there thinking “Well I didn’t get hit and neither did my area so why would this affect me?” Unfortunately, this couldn’t be further from the truth.
Now no one will know for sure how rates will be affected, other than the actuaries at the insurance companies, but there are a few points we do know.
- Insurance rates are regulated on a state to state basis, this doesn’t always mean that what happens in other states can’t affect your rate but its less likely.
- The insurance carriers look at their losses paid (the amount they paid out in claims throughout the year) vs the premiums taken in, if they show a loss there is usually a premium increase.
- Hurricanes, Tornadoes, Wildfires (even if they are caused by gender reveal parties), and Tropical Storms can make up a large part of the claims paid throughout the year and subsequently throughout the next year.
To touch on the first part this is where we circle back to those people in the northern part of the state saying “the tornado that devastated the southern part of my state shouldn’t affect me because it wasn’t in my area”. To an extremely small extent this is true as insurance companies do have territories so they can show which areas have a higher rate of loss and rate those areas accordingly but in the end whether you are in the north or south end of the state, the insurance company looks at your state as a whole when it comes to their profit and loss.
To put it simply insurance is like a big pool that everyone puts their money into (the premium you pay each month). If there is more money being taken out of the pool than being put into the pool carriers may raise rates to make up for that difference.
Hurricanes, Tornadoes, Wildfires, and Tropical Storms cause devastating damage that costs insurance carriers millions and millions of dollars. I know you are thinking “well that is what they are there for” and yes you are right, but you also have to look at it from their point of view. You paid your home insurance for lets say 5 years at $1,000 a year, which totals up to $5k. A hurricane comes through and levels your house and now the insurance carrier will rebuild your house for $350k. Even with interest made on the $5k you definitely came out on top.
These storms not only cause immediate damage but roof leaks and other issues that are caused by the hurricane can sometimes take 6 months to 2 years to show themselves.
For these reasons it is reasonable to conclude after a record year of storms and damage that we are looking at a higher possibility of a rate increase on home insurance across the board.
But what can we do???