How The Pandemic Hiked Home Insurance Rates

The COVID-19 pandemic affected our economy in many ways. From labor shortages to large-scale shutdowns, almost every sector of our society felt the impacts of this unprecedented era.

In the real estate market, we’ve seen both a surge in demand and a hike in home values due to increased work-from-home routines. Of course, there are other areas of this market enduring price increases as well, homeowner’s insurance being a big concern.

By The Numbers

According to research from Bankrate, the average cost of homeowner’s insurance in 2022 is $1,393 per year with $250,000 dwelling coverage. This is a 6 percent increase from 2021’s average of $1,312 per year, which puts insurance on track to outpace inflation. In states like California, Florida, and Louisiana, homeowner’s insurance premiums rose an average of 20 to 30 percent as a consequence of COVID.

This remarkable rise in homeowner’s insurance rates is due to several factors. Since labor and material costs are at an all-time high, the trickledown effect has a huge impact on the insurance industry.

The Economics of Homeowner’s Insurance

Tim Denton of Jim White Insurance in Dallas took time to outline exactly how this works.

“It’s a really simple equation,” Denton explains.

It essentially comes down to four parts all in direct consequence of COVID:

• An increased cost of materials
• Shipping delays in getting the materials
• Increased cost of labor
• And a decrease in qualified laborers

“When you look at the replacement costs associated with these economic obstacles,” says Denton, “you’re looking at a 10 percent to 20 percent increase in premiums since 2019. The insurance companies saw this coming as far back as 2020. I’d say they began making adjustments as soon as summer of 2020, and now rates are rising more and more every month.”

So how does all this translate to higher homeowner’s insurance rates?

With fewer people in the workforce due to COVID, demand for and cost of labor increases. Material costs increase because fewer people are producing them. Shipping delays increase because fewer people are working. Suddenly, the replacement cost of a $400,000 home is $480,000, and this 20 percent increase is passed down to homeowners in the form of premium hikes. It’s COVID Economics 101.

The good news is that it’s correctable. Unlike the long-term effects of inflation, these relatively short-term economic hitches could right themselves within months. Fingers crossed.