How Much Does Homeowners Insurance Increase Annually?

Homeowners insurance rates have been steadily rising in recent years. But how much should you expect your homeowners insurance premium to increase year over year? There are a few key factors that determine the annual rate hike for home insurance policies.

Home Insurance Rate Trends

Insurance rates are closely tied to inflation, rebuilding costs, risk levels, claims payouts and more. As these factors rise, so do premiums. Here’s a look at the upward trend in average home insurance rates over the past few years:

• In 2021, the national average homeowners insurance premium was $1,249 per year for a policy with $250,000 in dwelling coverage according to data from Quadrant Information Services.

• In 2022, the average annual premium jumped to $1,428 for the same dwelling coverage amount – a 14% rate increase from 2021.

• By 2023, the average annual homeowners insurance premium had climbed to $1,759. This represented a 23% rate hike from 2022.

• Based on current inflation and market trends, experts project average rates could increase another 10-15% in 2024. That would bring the nationwide average to around $1,950-$2,025 per year.

As you can see, average homeowners insurance premiums have been increasing by double-digit percentages annually over the past few years. While the pace of increase may start to slow, experts say homeowners should continue expecting rate hikes in the 5-15% range for the next few years.

Why Home Insurance Rates Are Rising

There are a few key factors driving the continued rise in homeowners insurance costs each year:

• Increased rebuilding costs: The cost of construction materials, contractors’ wages, and home services have all been rising significantly with high inflation. This directly increases the cost for insurance companies to repair or rebuild homes after covered claims. Higher projected claim costs mean higher premiums for homeowners.

• More frequent extreme weather: Climate change has caused an increase in the number and severity of natural disasters like wildfires, hurricanes, tornado outbreaks, and hail storms in recent years. More frequent catastrophic weather leads to increased claim volume and drives up insurance rates.

• High reinsurance rates: Reinsurance is coverage purchased by home insurance companies to help pay out large claim events and spread risk. Reinsurance rates have risen sharply, forcing insurers to raise premiums to offset this expense.

• Market losses: Major catastrophes like hurricanes plus rising non-catastrophe losses have caused underwriting losses for home insurance providers. As a result, many are raising rates to return to profitability.

• Increased litigation: The rising costs of liability claims due to lawsuits and litigation has also contributed to insurers hiking rates across the board.

How Much Will My Rates Rise?

While average nationwide rate increases provide a benchmark, your specific homeowners insurance renewal increase will depend on your unique risk profile and coverage. Still, most policyholders can expect annual rate hikes in the 5-20% range over the next couple years.

Factors that affect your personal rate increase include:

• Your location: Areas at high risk of natural catastrophes will likely see larger increases than lower-risk regions. Coastal states tend to see the biggest rate hikes.

• Your home’s characteristics: Older homes with outdated wiring, roofs, etc. will likely get hit with larger increases than newer homes built to modern codes.

• Claims history: If you filed any claims in the past 3-5 years, your increase may exceed the average.

• Credit factors: Policyholders with poor credit often face above-average rate hikes.

• Insurer financials: Struggling insurance companies may raise rates more aggressively than financially healthy ones.

• Individual state regulations: States have different rules about how much insurers can raise rates each year, which impacts your renewal increase.

To estimate your specific renewal increase, start by assuming you’ll face at least a 10-15% hike in 2024. Then consider the factors above to adjust higher or lower from that baseline, as they apply to you.

Strategies to Minimize Rate Increases

While most homeowners will continue to see significant rate hikes over the next couple years, there are some ways you may be able to reduce the size of your increase:

Shop around for cheaper insurance: Comparing rates from multiple insurers can help you find a lower starting premium to begin with, minimizing renewal hikes. On average, people save over $400 a year by comparing home insurance quotes.

Raise your deductible: Opting for a higher deductible like $2,500 instead of $1,000 can shave hundreds off your premium each year and limit rate hikes. Just be sure you have savings to cover the higher deductible if needed.

Update your home: Making improvements like installing impact-resistant roofing, updating your electrical and plumbing systems, adding storm shutters, etc. can reduce your risk and temper rate increases.

Improve your credit: In most states, good credit means lower premium hikes. Improving your credit score over time helps limit increases.

Review discounts: Make sure you’re getting all the discounts you qualify for, like bundling policies or going claims-free for years. More discounts = smaller increases.

Lobby your state: Write your state insurance commissioner and lawmakers in support of insurance reforms like tackling fraud and limiting lawsuits. This can help improve market conditions long-term.

Consider usage-based insurance: Some insurers offer special policies with rates based on actual home occupancy and things like smart home tech. This can help minimize traditional rate hikes.

How Much Are Rates Increasing in Each State?

Home insurance rates are rising across the country, but some states are seeing much larger increases than others due to differences in extreme weather risks, litigation environments, urbanization, and other localized factors.

Below is a breakdown of some of the states that have seen the highest rate hikes in recent years:

Florida: 45% average increase from 2020 to 2022

Louisiana: 15% average increase in 2022 alone

California: 7% increase approved for 2023, with more hikes expected

Texas: 29% average hike from 2020 to 2022

Colorado: 43% cumulative increase approved from 2021 to 2023

And a few states with more moderate rate changes:

Michigan: 7% approved increase for 2023

Virginia: 8.5% hike approved for 2023

Idaho: 5.5% increase approved for 2023

Check with your agent or insurer to see what rate changes have been approved or are anticipated in your state. Being aware of market conditions where you live can help you plan for and manage rising home insurance costs.

How Can I Prepare for Renewal Rate Hikes?

Since most experts anticipate continued double-digit rate increases over the next couple years, it pays to make financial preparations when your home insurance policy comes up for renewal:

• If your mortgage escrow account pays your insurance, plan for the escrow shortage that will need to be covered when your higher premium is owed.

• Consider setting aside a bit each month in savings to pre-fund future increases.

• Learn when your renewal will take place so you can shop quotes in advance if needed.

• Review your policy well ahead of renewal to see if any changes can help offset the increase, like raising your deductible or removing unnecessary coverage.

• Check when premium increase notices must be sent in your state so you aren’t caught off guard.

• Know the options in your state if you cannot afford a steep rate hike, like putting your policy in force-placed insurance temporarily.

The bottom line is homeowners insurance rates had been rising significantly each year before 2022 and will likely continue increasing through 2024 and beyond. Being proactive will make managing these annual rate hikes much more feasible.