Understanding the Hard Market in Home Insurance: Why Your Rates Are Increasing

In this video, John Lapointe, Vice President of Lapointe Insurance, breaks down what a “hard market” is and how it impacts your home insurance rate.

If you’ve recently noticed a hike in your home insurance premiums, you’re not alone. The home insurance industry is experiencing a “hard market,” leading to higher costs for homeowners. Let’s break down what this means and why it’s happening, in a straightforward way.

What is a Hard Market?

A “hard market” occurs when insurance companies limit their risk exposure by writing fewer policies or withdrawing from certain areas entirely. This results in higher premiums and fewer available insurance options. Essentially, it’s becoming more expensive and challenging to secure home insurance.

Why Are Prices Going Up?

Several factors contribute to the rising costs of home insurance:

1. Increased Claims and Costs: The insurance industry is seeing a spike in claims and associated costs. Inflation, supply chain issues, and severe weather events are significant contributors. For instance, 2021 witnessed 20 separate weather events, each causing over $1 billion in losses.

2. Reinsurance Costs: Reinsurance, or insurance for insurers, allows insurance companies to manage risk by sharing it with other parties. However, reinsurance rates have skyrocketed due to poor financial performance over the past years. This increase in reinsurance costs directly affects your premiums. For example, one of our carriers saw a 64% rise in their reinsurance rates in 2023.

3. Replacement Costs: Your home insurance is based on the cost to rebuild your home, not its market value. Factors such as supply chain disruptions, rising material costs, labor shortages, and local construction costs have significantly increased the cost to rebuild homes, thereby increasing insurance premiums.

4. Natural Disasters: The frequency and severity of natural disasters have surged over the past decades. The 2022 catastrophe season alone caused between $53 billion to $74 billion in insured losses from Hurricane Ian. As extreme weather events become more common, the risk to insurers—and thus the cost to homeowners—continues to climb.

What This Means for You

We understand that rising insurance costs can be frustrating and concerning. Our goal is to be transparent about these challenges and help you navigate through this hard market. Here are a few things you can do:

• Review Your Coverage: Ensure your coverage limits are adequate for the current rebuilding costs of your home.
• Mitigate Risks: Take steps to reduce risks, such as installing safety features like smoke detectors, security systems, or reinforcing your home against natural disasters.
• Stay Informed: Keep up-to-date with industry trends and changes. We are here to provide the information and support you need.

We are committed to helping you find the best possible coverage during these challenging times. If you have any questions or need further assistance, please don’t hesitate to reach out.

We appreciate your understanding and patience as we navigate through this hard market together.