How inflation is affecting homeowners insurance premium increases

Homeowners insurance premiums can increase for several reasons, but the higher-than-expected increases homeowners are currently seeing are primarily due to inflation. Building labor and material costs are the highest in 40 years. Higher construction costs equate to higher home replacement and repair costs, which ultimately results in increased homeowners insurance premiums to ensure your home is fully covered.

How inflation is affecting homeowners insurance premium increases

Homeowners insurance premiums can increase for several reasons, but the higher-than-expected increases homeowners are currently seeing are primarily due to inflation. Building labor and material costs are the highest in 40 years. Higher construction costs equate to higher home replacement and repair costs, which ultimately results in increased homeowners insurance premiums to ensure your home is fully covered.

By the numbers

30

%

30

The average increase in construction material and employment costs since Q1 2020.

50

%

50

The increase in construction material costs since Q1 2020.1

7

%

7

The increase in construction employment costs since Q1 2020.2

Economic disruption drives inflation up

Since the start of the pandemic, the U.S. has seen major disruption in the economy. This disruption is creating challenges across the home construction industry, affecting everything from the production of goods, to labor, to resourcing—and each of these supply disruptions have ripple effects across the economy. To put it simply, inflation occurs when demand exceeds supply, prices rise — that’s where we find ourselves today.

 

1. FRED: Producer Price Index by Industry: Building Material and Supplies Dealers

2. FRED: Employment Cost Index: Wages and Salaries: Private Industry Workers: Construction

 

Reconstruction material costs continue to increase

 

Inflation in the home construction industry has impacted the cost of many building materials required to restore your home in the case of a loss. These costs continue to rise due to current market conditions and the continuing recovery of the U.S. economy.

Inflation rates have compounded year-over-year in SageSure states

As a result of inflation, reconstruction costs rose as high as 22.8% in 2021.1 So far this year, reconstruction costs have continued to increase as much as 20% over last year. To ensure your home is properly insured, your insurance premium needs to increase to cover these increases in rebuilding costs.

  1. CoreLogic quarterly inflation factors based on MSB

 

Ensuring you have adequate coverage

We want to ensure you have enough coverage to account for the increased costs of repairs resulting from inflation. Without these necessary adjustments, if something happened to your home, it would not be fully protected. The bottom line: Your house will cost more to rebuild today than it did before the building labor and material increases occurred. Without the necessary increases to your coverage, your home would be underinsured, leaving a gap in coverage.

bridging the inflation-coverage gap

PRE-RENEWAL
COVERAGE

RENEWAL
COVERAGE

Inflation Resources

YOUR COVERAGE IS KEY

See why you should check your home insurance policy to make sure you’re adequately covered (CNBC).

YOUR COVERAGE IS KEY

See why you should check your home insurance policy to make sure you’re adequately covered (CNBC).

INFLATION IN THE MARKET

Understand the 9 common effects of inflation (Investopedia).

INFLATION IN THE MARKET

Understand the 9 common effects of inflation (Investopedia).

A DEEPER LOOK

Learn how inflation can impact insurance rates (Marble).

A DEEPER LOOK

Learn how inflation can impact insurance rates (Marble).

CORELOGIC QUARTERLY CONSTRUCTION INSIGHTS – Q3

Take a deeper look at the data on building material increases (CoreLogic).

CORELOGIC QUARTERLY CONSTRUCTION INSIGHTS – Q3

Take a deeper look at the data on building material increases (CoreLogic).

FEDERAL RESERVE ANALYSIS FOR CONSTRUCTION SALARIES

Study the data on construction industry wage increases (FRED).

FEDERAL RESERVE ANALYSIS FOR CONSTRUCTION SALARIES

Study the data on construction industry wage increases (FRED).

INFLATION DATA FROM THE BUREAU OF LABOR STATISTICS

Find out how inflation is impacting construction materials (NAHB).

INFLATION DATA FROM THE BUREAU OF LABOR STATISTICS

Find out how inflation is impacting construction materials (NAHB).

Frequently Asked Questions

What is inflation?

According to the U.S. Federal Reserve Bank of Cleveland, “there is inflation when the prices of many of the things we buy rise at the same time and then continue to rise. Explained another way, inflation is ongoing increases in the general price level for goods and services in an economy over time.”

How does inflation impact Homeowners insurance?

When the U.S. economy experiences significant inflation, the cost of construction, materials (such as lumber or metal), and labor increase. Materials and labor impact how much it costs to re-build your home in the event of a total loss. While SageSure hopes that no one ever experiences a total loss, it’s important to make sure that your policy has enough coverage for the increased costs of re-building your home in the event of a loss.

What has changed recently?

You may have noticed an increase in the cost of groceries, going out to eat, travel, etc. over the last year. Building materials and construction labor costs have experienced even higher increases, and since these costs have increased approximately 20% across the country over the last year, the coverage on your policy is being increased to cover the increased costs of re-building your home in case you experience a total loss.

Why is the replacement cost potentially different from my homes market value?

The replacement cost of a home considers the materials and labor cost of re-building your home in the event of a loss. Your market value is the price that you could sell your home to a potential buyer and includes the value of the land, the real estate market in your area, and other relevant factors.

Now I have more questions about the replacement cost of my home and my coverage, what should I do?

The insurance agency you originally purchased your policy from is a valuable resource to help you understand your policy and what coverages you have in place to make sure you are protected. Your enrollment package and policy documents from SageSure have the contact information for your insurance agency/representative. If you need help locating the contact information, you can always reach SageSure at (800) 481-0661.

What else I can do to make sure my home always has the right coverage?

It is always a good idea to keep your agency (where you purchased your policy) up to date on any changes or improvements you made to your home at least once a year, so that you always have the right coverage limit. Your agency can review any changes with you and adjust coverage limits if necessary.

Have additional questions? We’re here to help.

 

If you have questions about your policy or any other insurance related inquiries, contact your insurance agency/representative, or call our customer care line at (800) 481-0661. We want to help you understand your policy and feel confident that your home is protected.