1. 1909 POINTS
    HDA Insurance BrokeragePRO
    Director, HDA Insurance Brokerage, California
    Homeowners Insurance is a contract whereby a homeowner transfers his/her risk to an insurance carrier in return for a contract and a small premium.

    Homeowners Insurance Premium will usually increase from year to year; however, by chance a decrease may be seen once in a while. Insurance companies increase the Dwelling Coverage each year to keep up with the increasing cost of reconstruction; after all, homeowners insurance's primary purpose is to rebuild a home in the unfortunate event of a total loss.

    The small increase of dwelling coverage each year is usually the purpose that draws attention when the premium rises; however, this is very insignificant. Insurance companies are audited each year and are obligated to comply with State Department of Insurance regulations in each and every State where they underwrite risk. Each year, insurance carriers calculate the necessary premium to maintain a safe financial condition and offer security to all homes insured; the largest reason for premium increase would be 'loss experience' during the prior year, another reason may be due to increased operational cost including but definitely not limited to reinsurance premium paid.

    Insurance Companies either have an internal actuarial department or hire an independent actuarial firm who are charged with the responsibility of calculating premium based on underwriting factors and prior loss data. For this reason, carriers only offer annual policies and are unable to predict risk on a longer term basis. Since carriers experience different loss results each and every year, insurance rates and increase percentages are never the same from one year to the next.

    Since paid losses continue to grow, claim frequency is showing growth and litigation is becoming more commonplace, insurance companies raise premium to keep up with the outflow of payments. It is important to recognize that claims and operational expenses are paid from the pool of collected policy premium.

    For a more detailed explanation or financial report from your current carrier, contact your carrier representative to receive a report. Also, data is available as published by the Department of Insurance in most States.
    Answered on December 14, 2014
  2. 1866 POINTS
    Paul RothPRO
    Senior Commercial and Annuity Specialist, Freedom Brokers, Marion, Carbondale, Harrisburg IL
    The rates and costs for any insurance is the total costs, plus profit, shared among the policyholders. Home prices historically increase. Labor costs also have increased over the years. The amount of money spent on lawyers-many for frivolous lawsuits-has increased (just turn on your TV for a while and see how many lawyers are suing)
    It only makes sense that, if you have a claim, the costs to fix the claim increase. Insurance companies cannot raise their rates at will. They must justify the costs to the State board of Insurance. And that costs money.
    In short, all costs are shared among the policy holders. That's why your rates go up.
    Answered on August 23, 2016
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