There’s a great deal of fear and fiction surrounding the homeowners’ fire insurance industry since Los Angeles’s horrific January wildfires. What’s true? What’s not? It’s difficult for many people to discern fact from fiction.
To do so, to separate fact from fiction, don’t give in to fear. Be curious. Ask questions. And ask those questions of more than one insurer. By doing so, you’ll get to the truth.
It is true that insurance rates are on the rise. But that’s been the case for more than 10 years. It’s one of the reasons that my partners, Joel Silver and Drew Engler, and I launched WOWS Insurance Services last year. We also believe there’s a better way to approach homeowners’ insurance and ultimately bring the costs down. More on that later.
To address the rising rates point, First Street Foundation’s Jeremy Porter has stated that specialized insurance premiums have risen 66% on average since 2017, outpacing home price appreciation. He further indicated in an Insurance News article that homeowners insurance premiums, which typically accounted for 7 to 8% of mortgage costs, increased to 23% last year. While his report suggests that the rising costs and reduced availability of insurance may influence where people choose to live going forward, the expectation is that rates will increase an average of 29.4% over the next 30 years.
There are states with a low risk of weather events. As a result, property insurance rates have maintained stability, and premiums are more affordable, yet the number of states with increased rates has grown significantly.
“It used to be that you had two or three ‘dangerous states’ and the other 47 kinds of offset,” Chris Schafer, Senior Editor for home insurance at Insurify stated in a recent Newsweek article. “But we’re seeing increases in a lot of places. It’s California, Florida, Louisiana. But there are also states like Colorado – where there’s spillover wildfire risk – Arkansas and Texas – where there’s humongous tornado risk,” he added.
On another topic, far too few people know what’s in their home insurance policy. When is the last time you read yours?
Yet you may have celebrated an increase in the value of your home.
Rather than raising a toast to that event and moving forward, recognize that it’s an ideal time to pause, review your policy and determine if you need to increase your coverage to be certain you have enough. Call your agent and discuss this. If you’ve not done so in recent years, you’re likely underinsured.
How much is enough? What is the average cost to rebuild in your area? What if you need to rebuild? Add 20% to that number due to increasing costs for labor and materials. Insurance companies also have a replacement cost tool. Use that and research online, as well.
Why? While home values have increased, so have the costs for repairing and rebuilding, mostly due to the increasing expenses for labor and materials. Also, review the list of perils. Are you insured for everything you need to cover? Water? Earthquakes? Wind? Wildfires?
What are the best ways to lower your home insurance premiums while maintaining adequate coverage?
- Higher deductibles will save you money while keeping you covered
- Bundling, ie, home and auto insurance with the same company, will help to lower costs
- Getting quotes from multiple companies, while being certain it’s for the exact same coverage, can also help save you some money.
The best thing a homeowner can do to gain the best premium reductions is to follow CalFire’s Lean, Clean, Green guidelines. Fire harden your house, close the eves, add alarm systems, use fire retardants, remove dry brush, etc.
Everyone who owns a home/property needs insurance. It’s likely the greatest asset they will ever own. Think of it this way…would you spend 1% of the cost of your stock portfolio to ensure its value will never go down? That’s essentially what you are doing when you buy homeowners insurance.
Currently, WOWS has expanded to lead the charge to bring additional insurance carriers back into California. The solution is to spread the risk.
With WOWS Insurance LLC, each company will hold a portfolio of California homes, diversified by location. This allows WOWS to make a really unique offering that lowers the risk to the reinsurers. So premium charges can be reduced over time. Properties will be grouped together, so the homes in each portfolio have similar fire scores and values. WOWS has identified over 293 different areas in California alone within its risk profile, with no more than one home from each area in each portfolio.
It’s been able to show that, from an actuarial standpoint, even if it’s the highest of high fire scores, the spread of risk is significantly more important than the fire scores themselves.
WOWS Insurance Services’ plan is to expand beyond California to eight western states, highlighting those states like Nevada, Washington, Oregon, Utah and Colorado that all face similar wildfire risk. Their insurance markets are three to five years behind the California market.
Importantly, the WOWS program is fully transferable from home sellers to buyers, something that numerous realtors believe makes the policy an asset of the property. This is an industry first and major California realtors have said that being in the program could boost a property’s value.
WOWS will be stabilizing the market because when you make the policy fully transferable from sellers to buyers you’re taking the fluctuation out of the market. Right now, there are two problems. Consumers are not sure if they are going to get a renewal, and they don’t know if the premium is going to double or triple overnight. WOWS solves both of these problems.
Learn more about WOWS Insurance Services at https://wowsinsurance.com/.
