What to do when your homeowners insurance rate rises

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What to do when your homeowners insurance rate rises

Homeowners insurance rates in North Carolina have not increased since 2012. That will change in October. Rates will rise an average of 4.8% statewide after state officials settled a legal dispute with North Carolina insurers, who originally sought an 18.7% increase.

Aside from your mortgage and property taxes, homeowners insurance is one of the big expenses of owning a house. Your mortgage payments are pretty much set once you move in and you have some influence over property taxes through your elected officials, but you don't always have much say in your homeowners insurance rates. The increase in North Carolina is a good look at what drives rates and what you can do if they go up.

What happened in North Carolina?

North Carolina is a little different from other places when it comes to insurance. About 40 years ago, the state legislature created the North Carolina Rate Bureau, a partnership of all the property and auto insurance carriers in the state. The bureau basically acts as one big insurance company and, using data from the state's carriers, sets rates for all of them to follow.

"The rate-making process is pretty straightforward," said Ray Evans, general manager for the bureau. "Ultimately the premium equals losses plus expenses plus profit."

The main variable in this equation is the frequency and severity of claims, Evans said. The bureau proposes rate increases on behalf of the insurance companies based on these numbers. The state insurance commission judges rate proposals based on state law, which says rates "shall not be excessive, inadequate or unfairly discriminatory."

When there's a disagreement, it can lead to litigation, as was the case this year. The rate bureau asked for an 18.7% increase in part to "catch up" after years of minimal or no increases, Evans said. It ultimately settled on less than 5% to avoid a lengthy trial.

Sherri Hubbard, legal counsel for insurance commissioner Mike Causey, helped oversee the settlement. The commission thought the rate bureau's estimated losses "were way too high" in its 18.7% proposal, Hubbard said. The commissioner had to balance the impact on residents against the viability of the state's insurers.

"The commissioner is very mindful of the impact of high rates on all consumers," Hubbard said. "He tries to minimize those rates to the extent that he can legally do so. But we want a strong, robust industry in North Carolina with many carrier options available to consumers as well as affordable rates."

What's the impact on homeowners?

The average homeowners insurance policy in North Carolina costs around $1,000 a year, but there is big variety across the state, Evans said. Insurance on the coast could cost more than 10 times that, while a policy in an inland city like Greensboro would go for about half the average price. Likewise, the 4.8% increase is an average. Some premiums are going up as much as 12%, while others are decreasing.

But the average increase for the average policy amounts to about $50 more a year. A change in gas prices will likely have more impact, and homeowners insurance is a better investment, Evans said.

Individual companies can also offer lower premiums if they file a request with the state, said Andy Montano, director of personal lines for the rate bureau. Taking all the variations into account, not to mention different costs to insure different homes, a 4.8% increase is far from standard.

That said, any increase is a cause for concern, especially for people on the coast, who already pay a lot for insurance, Hubbard said. That's where much of the dispute between the rate bureau and the insurance commissioner centered.

"Insurance companies are increasingly leery about writing business on the coast because losses from hurricanes can be huge as a result of more development," Hubbard said. "Hurricanes, however, can be sporadic, so it is difficult to estimate the needs to cover those future losses."

What do other states do?

North Carolina is alone in this rate-setting process. In other states, individual insurers file rate requests with their respective departments of insurance.

But rates are likely going in the same direction across the country. Hurricane activity made 2017 a record year for losses in the insurance industry, according to Munich Re, a reinsurance company. When the cost of claims rises, the cost of insurance generally rises too, said Lynn McChristian, a faculty member in the risk management and insurance program at Florida State University.

"[Carriers] look at their loss history and what has happened long-term and short-term and use that to make an estimation of what may happen in the future," McChristian said.

In every state, regulators make sure the rates insurers propose are appropriate, McChristian said.

What do you do if your rates go up?

Talk with your insurance company, McChristian said. Do it every year.

"You want to have a conversation about what you can do to moderate your increases," McChristian said.

Ask for discounts. Many insurers give a discount for having a new roof that stands up better to weather, McChristian said. Security systems may also qualify for an insurance discount.

You may also want to look at your deductible, the amount of money you pay before insurance kicks in. If you raise your deductible, your premium will go down. But make sure you can afford your deductible if your home is damaged, McChristian said.

"You don't want to take a deductible that you don't have an amount budgeted for," McChristian said.

And remember when we said rates vary, even in North Carolina? That means you can shop around for your insurance policy.

"There are more than 100 insurance companies in North Carolina, so there is a big market that people don't utilize," Evans said.

But many people are nervous about shopping around because they don't know the right questions to ask their brokers, Evans said. Luckily there's help. The Insurance Information Institute is a good source for basic knowledge. You can also compare homeowners insurance quotes right here on Policygenius.

Evans also recommended talking to an insurance agent and reading your insurance policy. It might seem daunting, but knowing what it covers could make a big difference in protecting your investment in your home.

Don't yet own a home? Check out our guide to how renters insurance works.

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