If you’ve taken a trip to the lumberyard lately to pick up materials for a home project, you know the cost of building materials is going crazy right now. Meanwhile, it’s tough to find a contractor with time to fit new projects into their schedules. The price increases are fueled by a number of factors largely driven by the pandemic—demand for materials and contractors is up as more people have focused on improving their homes, while supply from wholesalers is inconsistent as they deal with labor shortages, plant shut downs, and transportation problems to name a few.
While all of this might make your next home improvement project more difficult, it also will have an impact on your Homeowners insurance, and property insurance in general for things like Rental Dwellings and Commercial Property. According to a May 2021 report from Aegis General Insurance:
- Total reconstruction costs including labor and materials are up 9.1% from early 2020 to early 2021 nationwide.
- Lumber costs specifically are up 84.71% when comparing April 2021 to April 2020.
These forces will be impacting the Homeowners insurance market in a couple key ways, both likely pushing insurance prices higher:
- Rising inflation factors – Each year on replacement cost policies, your Dwelling coverage amount is automatically increased a bit to account for inflation. Often this annual increase is maybe 2 or 3%, but some insurance carriers might aim these increases much higher—some reportedly are looking at increases in the 8% or more range.
- Rising rates – The primary item driving Homeowners insurance rates (basically the price-per-thousand in coverage) is the cost to repair a home. That tree branch through the roof or small kitchen fire that makes for a Homeowners insurance claim gets resolved by hiring a contractor to fix the damage, and that is paid by your insurance carrier. So if future claims end up costing more to resolve than they did in the past, that pushes Homeowners rates higher over time.
The outlook isn’t all negative in terms of price increases, however. Many analysts think the high spike in materials costs will settle back down in the coming months. If overall weather patterns keep widespread catastrophic severe weather away from Michigan and the Midwest, that will help keep claims and thus premiums down. And, the Homeowners insurance market remains very competitive—insurance carriers do compete on price—so that also will continue to help keep prices down.
Is it time to review your Homeowners, Rental Dwelling, or Commercial Property insurance? Contact us at Hardt Insurance if you’d like to explore your options further!