The price for homeowner’s insurance is predicted to rise by an average of 8 percent in 2004, according to a report by the Insurance Information Institute (I.I.I.).  This is on top of an estimated 7 percent increase in 2003. This article examines the various factors causing the price increases and recommends steps homeowners can take to keep premiums contained.

On a national level, one cause of increased costs is the huge number of people who have taken advantage of low interest rates by moving into larger homes or improving their existing homes. When you have more property value to insure, insurance premiums go up.

A dramatic increase in the severity of natural disasters is another factor. Since 1990, insurers have paid out more than $100 billion in catastrophe-related losses, an average of about $700 million per month.  In addition to such well-known events as Hurricane Andrew and the Northridge earthquake, there have been hundreds of smaller disasters from storms, wildfires, ice, etc.  Virtually every part of the country is either at risk of or has experienced a billion dollar disaster.

Sharp increases in construction costs are also impacting insurance premiums. Due to these cost increases, as an average homeowner you probably are not carrying enough property insurance to cover the cost of replacing your home in the event of catastrophic damage.  Some 45 million U.S. homes (about 64 percent) are reportedly underinsured. The rapid escalation of housing replacement costs is leading some insurance companies to cease offering replacement cost coverage, offering, instead, only an agreed upon ceiling amount for rebuilding the dwelling. 

Yet another cost factor is the increasingly expensive problem of mold.  Although water damage and mold in homes is not new, recent high profile lawsuits and claims have greatly increased people’s anxiety about this issue.  To avoid being overwhelmed by claims related to water damage, insurers are taking steps to limit coverage; meanwhile, however, premiums have had to be raised to cover increased risk of mold and water damage claims. 

When purchasing a home, learn its insurance loss history.  If there have been past losses, be sure to closely inspect the home to know they were properly repaired.  The CLUE and A-PLUS databases enable insurers to check the claim history of the property as well as that of the homeowner. 

Raise your deductible. Higher deductibles on your homeowner’s insurance could produce savings of 15-30 percent or more.

Upgrade your home. Consider modernizing your heating, plumbing and electrical systems to reduce the risk of fire and water damage. Make sure to let your insurer know of these upgrades.

Find out from your insurer what steps you can take to make your home more resistant to windstorms and other natural disasters. You may be able to save on your premiums by adding storm shutters, reinforcing your roof or buying stronger roofing materials. Older homes can be retrofitted to make them more capable of withstanding earthquakes.

Improve your home security. You can usually get premium discounts of at least 5 percent for installing a smoke detector, burglar alarm or dead-bolt locks. Some companies offer to cut your premium by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that signals the police, fire department and other monitoring stations. These systems aren’t cheap and not every system qualifies for a discount. Before you buy such a system, find out what kind your insurer recommends, how much the device would cost, and how much you would save on premiums.

Buy your home and auto policies from the same insurer. Some companies that sell homeowner’s, auto and liability coverage will take five to 15 percent off your premium if you buy two or more policies from them.

Maintain good credit. Increasingly, insurers are using credit-based insurance scores to determine homeowner’s and auto coverage premiums. All else being equal, a person with a good insurance score will pay much less for insurance than someone with a lower score.