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Craig Morsberger

Why Homeowners’ Insurance Rates Vary Greatly

Posted in: Personal Insurance

Have you ever wondered how your homeowners’ insurance rate is determined? Or why is it possible that your rate can vary so much among carriers when shopping for your policy? There are actually many factors that affect your rate, which I outline below to help you better understand what you can and cannot control to lower your premium.

Factors you can control 

Your homeowners’ insurance rate is affected by:

  • The condition, age and location of your house.

If your home is an older construction, regular updates indicate to your insurance company that you are a responsible homeowner, which lowers your risk for a claim and therefore, qualifies you for a discounted rate. Some practical maintenance you can do includes replacing your roof if it’s older than at least 15 years, and updating wiring, plumbing and HVAC systems. 

If you are moving, you may consider:

    • Buying a newer building, which typically qualifies for a lower homeowners’ insurance rate because it is in overall better condition. Also, if feasible, you may choose a home constructed with fire-resistant materials like brick and concrete, which is more affordable to insure than a home built with soft, flammable materials such as wood.
    • Living:
      • Near a fire department and/or fire hydrant;
      • In an area where building costs are lower to manage the total cost of your claim in case you have to rebuild or repair your home; and
    • Avoiding:
      • Natural disaster-prone areas, such as flood or tornado zones;
      • Close proximity to high crime areas.
  • Your property risks, such as having a swimming pool, trampoline, guest house and aggressive dog breed. Each of these will increase your homeowners’ insurance rate, so make sure the benefits outweigh your costs.
  • How you handle claims. Try not to report small claims to help keep rates lower because filing frequently can increase your homeowners’ insurance rates.

Insurance companies consider these factors when calculating your insurance score, which predicts the likelihood of you filing a claim – the higher the score, the higher the risk, and therefore your premium.

  • The insurance provider’s risk appetite. In addition to considering changing your behavior and following some simple steps discussed above to receive a more favorable rate, you might also wish to seek assistance from an experienced and independent broker. Since most insurance companies tend to specialize in insuring certain homes, it is important to have an impartial partner who will find a carrier with risk appetite that matches your situation and negotiate on your behalf with a number of competing companies for the best rate.

PSA Pro Tip

Secrets of the Savvy Homeowners Buyer

Did you know there are incentives that could help you save money on your policy? 

Learn more

Factors that may be beyond your control 

  • The calculation method of your insurance score. Unfortunately, there are certain things you cannot change. One of these is the exact calculation method of scores, which varies greatly among insurance carriers. Also, insurance companies group the scores into different premium tiers, up to 27, which can place you in different premium category with each carrier, but typically, the closer you are to tier one, the better your insurance premium is with that specific carrier. For instance, if you have good credit and employment history, and keep your home well maintained, then more than likely you will be placed in a lower tier in general, but the specific tier will be different with each carrier.
  • Actuarial information. Furthermore, insurance carriers determine their tiers based on actuarial information. For instance, some carriers will choose to insure an older population because they are considered a lower risk group, for which you may not qualify.
  • State regulation. Also, remember that insurance is regulated by each state, which can affect how your rates are calculated. For instance, in some states it is illegal for insurance companies to factor in your credit score when calculating your insurance rate, while others allow it.

Finally, each year, state insurance departments are decreasing or increasing their state’s insurance rates based on actuarial information submitted by carriers. Pennsylvania, New Mexico, California and North Carolina have recently experienced the largest decreases while Tennessee, Minnesota, South Carolina, Illinois and Alabama have had the largest increases due to prior losses caused primarily by weather related losses. Unfortunately, for the most part, you do not have any control over your state’s insurance rates.

Having a good understanding of the full picture will greatly help you focus on areas that are within your control to change, which in turn will improve your chances for a better premium, rather than worrying about aspects you cannot effect.

In my next post, I will share tips on how to receive homeowner’s discounts that you may be missing out on, but could further lower your premium. In the meantime, if you’d like to discuss your personal risk management strategy, have questions about your current homeowner’s policy or would like to explore a better rate, please feel free to contact me at fgiachini@psafinancial.com.

About The Author

Craig Morsberger joined PSA in November 2012. As VP of Commercial Division he currently spearheads the team serving medical professionals, professional services companies, law firms, technology businesses and any other organization needing the following types of coverages: Medical Malpractice, Professional Liability, Tech E&O and Cyber insurance, Management Liability as well as a range of other commercial coverages. Prior to joining PSA, Craig worked for Medical Mutual as a Senior Underwriter and then as the manager of their Virginia office. Craig earned a Bachelor’s Degree from McDaniel College with a Major in Exercise Science and a minor in Business Administration. He also has his Property & Casualty Producers License.

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