Conversations with clients frustrated by skyrocketing insurance premiums have, unfortunately, become an almost weekly occurrence here at FWM. While most of us have probably thought about just junking the whole insurance thing, I do certainly hope you have settled on the more responsible part. Still, with these frustrations in mind, I thought this month I'd turn to local insurance expert Steve Hakes, of Rocky Mountain Insurance Center, to provide some insight into just what, exactly, is happening. So, without further ado, some insight and commentary from Steve:
RATES: Some insurance companies are still seeing rate increases. Due to over $93 billion in claims being paid out in 2023, the insurance industry has billions of additional dollars to collect to be ready for the next storm season. Several companies I regularly work with have said they’re expecting rates to stabilize or even plateau toward the end of this year, assuming no major storms or fires. Home insurance rates are simply higher than they used to be. Factors like the home's age, roof age, size, location, and applicant's claims-filing history all play a role.
DEDUCTIBLES: The days of $1,000 deductibles are gone. You might find a $2,500 deductible straggling out there somewhere, but for wind & hail damage most companies are now going with a fixed $5,000 deductible or a percentage deductible, usually 1% or 2% of the dwelling coverage. So, if the dwelling coverage is $875,000, and a client has roof damage due to hail, that homeowner will pay $8,750 before the insurance company will take any action. Or, if it’s a 2% deductible, then it’ll be $17,500. Ouch. That’s where the industry went to try to keep claim payouts lower and insurance companies solvent. Also, understand that a percentage deductible is based on the dwelling coverage, which has an “inflation guard” attached. That means each year the dwelling coverage automatically increases to keep pace with increased labor and materials cost. So, as the dwelling coverage increases, so does a percentage deductible. In our example, a home with $875,000 dwelling coverage this year, may have a 5% inflation guard attached, which will cause the dwelling coverage to increase to $875,000 + 5%, or $918,750 the following year. This means a 1% deductible that next year has now increased to $9,187. Many people don’t realize those percentage deductibles change, but they do. Homeowners will need to keep more money on-hand to cover these higher deductibles.
AVAILABILITY: The number of insurance companies writing homeowners insurance in Colorado has decreased. Most companies have pulled completely out of the mountains, and for those that still write mountain homes, they’ve very restrictive. There’s been a steady wave of companies non-renewing their mountain home insurance customers, so even if a person bought a mountain home and was able to find insurance this year, it’s possible they may lose that coverage next year. Other companies will write the home but will exclude fire as a cause of loss. Still others may write the home insurance but have stringent fire mitigation standards that are nearly impossible to meet. The reality is it’s not a good time to buy a mountain home; it just isn’t.
Insurance on the Front Range has become more challenging, too. Some insurance companies have stopped writing insurance locally altogether, others have limited how many home policies they’ll write, others require auto-home bundles, others have limited dwelling coverage, and still others won’t write near any kind of open space. Things are changing all the time.
We try to encourage homebuyers to find reputable names for insurance, not the cheap one-off brands or companies that are known to cause problems at claims time. There have been at least half-a-dozen online insurance companies leave Colorado because they came in a few years back thinking they could buy up the market with low rates, but then the 5/9/2023 hail storms hit, and those companies didn’t have enough premium stashed to pay their claims. While most of the reputable companies have increased their rates and cost more than the online companies, they have the solid financial backing homeowners should be looking for, and are able to take the big financial hit a large event may cause.
Uggh. Didn't sound like a lot of good news there, but thank you, Steve H. If you'd like to talk insurance more, don't hesitate to reach out to me.
Interestingly, you might think shares of publicly traded insurance companies have taken a tumble the last few years based on this email. However, you would be wrong. Which leaves one financial planner kind of wondering...
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