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Find out how much home insurance rates increase — and why

The cost of homeowners insurance has risen considerably in recent years. In 2010, the National Association of Insurance Commissioners (NAIC) reported an average annual cost of $909 for homeowners insurance. As of 2020, we estimate that the average cost is $1,445 — a total increase of 59% over the last decade.

With sustained growth in property values across the country as well as an increase in the impact of natural disasters like hurricanes and wildfire, the growing demand for homeowners insurance is likely to continue driving rates upward.

Which states are most likely to see higher home insurance rates in 2020?

Each year, states require insurance companies to submit a rate filing that describes how they plan to adjust their rates in the next year. According to rate filings from the past five years, 31 states have seen home insurance rates outpace the cumulative rate of inflation (9.14%). The states with the greatest increase in rate filings for 2020 include California, Nebraska and Illinois.

To understand why rate increases are especially high in certain states, we look to a measure called the loss ratio. The annual loss ratio of an insurance company is equal to the claims paid out divided by the premiums collected. This makes loss ratio an inverse measure of an insurer's profitability. A loss ratio over 100% means that an insurer paid out more than it earned.

In states where insurers post very high loss ratios, rates tend to increase significantly in the following years. For instance, California's devastating Camp Fire in 2018 led to $16.5 billion in wildfire damages. As a result, the state's insurance industry experienced a loss ratio well over 100%, and their rate filings for 2020 reflected the most aggressive increases in the country.

Rate filings also reflect the rising cost of construction. Because homeowners insurance covers the cost of rebuilding or repairing residential structures, insurer rates are influenced by increases in the local price of materials and labor. Where states have experienced severe disasters and a spike in construction demand, shortages can lead to insurers raising their rates.

How to control your homeowners insurance costs

If your home insurer raises your rates year after year, there are plenty of competitors willing to offer you a quote to switch providers. So long as you aren't compromising on the amount and quality of coverage, switching insurers is one of the most effective ways to control your costs. While you may miss out on your old insurer's loyalty discount, providers often offer discounts for new customers too.

Get Quotes for Affordable Home Insurance

If you have a bundled policy that you want to keep, another option is to raise your home insurance deductible. While this means you're on the hook for a bigger share of the upfront costs in any claim situation, accepting a higher deductible should lead directly to lower premiums.

What if my old insurer won't renew my policy?

Sometimes an insurer will inform you that your home insurance policy will not be renewed. Depending on the reason, your options for finding an affordable alternative will vary. If you've been canceled because your property has an unusual risk factor — an old roof, for example — addressing that issue may open a path to renewal with your old provider.

Finding cheap coverage gets much harder if insurers think you live in an area that's at high risk of a wildfire or other natural disaster. In such instances, we recommend looking to either your state's FAIR plan options or an assigned risk provider. While it's likely that these options will cost more than your old insurance, those costs are still preferable to rebuilding your entire house out of pocket.