Homeowners insurance rates outpace inflation

Low inflation rates in recent years might lead homeowners to expect a stable real estate insurance market. However, a new study by the Insurance Research Council found that in recent years, the rising cost of homeowners’ policies has outpaced the rate of inflation by double. The study showed that this isn’t due to the frequency of claims that have been filed, but rather the severity of claims that have required settlements. 

When matching homeowners with an appropriate insurance policy, it’s important that they pay as much as they need to cover replacement expenses, but not excessively more. To achieve this, agents and insurance companies depend on pinpoint accuracy in property valuations to determine the most current, accurate and prescriptive policy for homeowners. 

Growth at a rate twice that of inflation might sound exorbitant, but the severity of claims has been even steeper compared to inflation rates. 

“According to the study, all of the rise in average costs per insured home was due to growth in the average claim severity, which grew at an annualized rate of 7.8% from 1997 to 2013, or more than three times the rate of inflation,” explains Property Casualty 360. “The claim severity increase more than offset a 2.6% annualized decrease in claim frequency.”

By merging those two figures, it stands to reason that the annualized increase of pricing should hover around double the rate of inflation. The good news is that fewer claims have helped to moderate the hikes that might have been caused by more severe claims. 

Homeowners’ insurance policies are a major investment that can save the day in the event of a catastrophe. To provide the most accurate home valuation to clients, explore our valuation tools today.