Hello everyone. Welcome to the first episode of The Risk Rewarded. During today’s episode, I will be going over industry changes in the home insurance market and topics that consumers should keep in mind when going and shopping for insurance. My expertise is more towards the Midwest as I live in Missouri, but I also sell in other states.
Many of you have heard about the natural disasters in other states such as Florida, California, Colorado, and Texas, but it does impact every state at this point as it is more an industry change and no state has had it easy at this point.
Now I will go over a couple of changes that have impacted many customers that we have.
One of the coverage changes that is happening currently is increasing deductibles. Many carriers are increasing the wind hail deductible to 2% – 5% of the home value. What this means is, if you have a $300,000 home, then your deductible would be $6,000.
On top of that, insurance carriers are starting to depreciate the value of roofs at a certain age or at day 1, depending on the carrier. They will list it as a scheduled buyback program. Each carrier is a little bit different, so you’ll want to go over the terms, but many that I have seen will list out a schedule similar to this, where if the roof is 10 years old then they’ll value it around 60%.
That means 40% would be out of pocket for materials, and some companies also depreciate the labor coverage as well. Another thing that companies are starting to do is not provide coverage for cosmetic damage or replace undamaged siding. So, there are limited companies out there that will wrap a house if one side of the home is damaged or paid to replace any undamaged siding. However, I’m not aware of any at this point without purchasing additional coverage. They do offer coverage for paying for matching siding. Usually, that is limited to around $15,000 to $25,000.
When I first started in insurance, the deductibles were around $500 to $1,000, sometimes even $1,500 for home insurance, but now many are facing the culture shock of the drastic increase in insurance deductibles. Before, it was too low and people probably expected too much out of their insurance company as it led to a very unprofitable pattern with how rapidly we have to replace roofs specifically where I’m living.
One of the other areas that clients need to be aware of when they receive their home insurance renewal is policy limitations. Some of these include coverage for fungi, mold, or bacteria. Typically, a policy will limit that coverage to $5,000 to $15,000. This is not an additional coverage, it’s a limitation. A good example of how these things are listed as a limitation (but it may seem confusing if you’re purchasing additional coverage) would be for a company like American Family, where they have exotic animal liability at $25,000.
This is not purchasing additional coverage, it’s lowering your liability exposure for specific instances, as most homeowners insurance policies have a liability limit of $300,000. So in that situation, things that they deem to fall under exotic animal liability would be limited to $25,000.
Another aspect of home policies that people will want to keep aware of is if their current policy excludes coverage for hobby farming. This includes selling eggs or having your fields plowed for hay. If you make any money from it, it would fall under hobby farming and you need to make sure that your home insurance policy is okay with that.
Now you may be asking yourself, why has this been happening in my state? Depending on where you live, in general, it’s a multifactorial cause. It’s not just inflation. It’s the increased wages that are brought about by inflation, along with the reclassification of many states from reinsurance companies.
Missouri has been reclassified as a highly convective storm state by many insurance companies. What that means is we’re more likely to have severe hailstorms and or tornadoes. In 2023, from my recollection, there were 400 reported severe hailstorms in Missouri that tied us fourth in the country with Colorado.
So when you add all of these up, the cost of repairs has gone up, the cost of labor has gone up, the value of homes has increased dramatically, and insurance prices did not increase as rapidly as they should have to keep up with the pandemic.
What insurance reclassification does though is impact many smaller carriers as they’ll be disallowed from taking on additional risk. And some of them have gone out of business recently. The last time I looked, roughly 70% – 80% of home insurance is carried by 25 carriers. So that gives a clear example of where there’s limited competition at this point, and it makes it more difficult for the consumer to dictate terms. It is more of a seller’s market than a buyer’s market. The companies say what they’re willing to offer and the customer has to accept it.
Now I would like to go over how you can mitigate your exposure and/or cost for insurance policies.
When you are shopping for insurance, most people do not realize that the new carrier is going to inspect your home. Sometimes this includes flying drones over to take very detailed pictures of the roof. So you want to make sure everything is in good condition. Things that they will look for are if your siding needs to be cleaned, if you have tree limbs overhanging your home, if there’s any damage to siding, and if you have a swimming pool, if that swimming pool is properly secured, if you have a trampoline: many will not offer coverage in these situations.
Typically at this point, I recommend people do not actually own a trampoline and just go to a place like Sky Zone and enjoy it there as it increases your cost for home insurance and limits the carriers that you can go with for home insurance. Another thing that they will look at are your steps If it’s more than two steps, typically they require a railing. If you do not have a railing, they will give you a specific time frame or they will just set the policy to cancel.
You will also want to disclose If you have any dogs and what breed they are. Many companies have a prohibited breed list. I don’t agree with them personally as I’m an animal lover, but it is the nature of the industry. So, if you have a rottweiler or a pit bull, you’ll wanna make sure that it is okay with your home insurer as they could invalidate your policy.
You’ll also want to mention if you have any wood heat, as wood heat can be a surcharge or preclude you from getting the policy with them.
The key aspect that is driving insurance rates or acceptability of insurance at this point, though, will be roof age. If your roof is 10 years old or older, most of the time, it is not a good idea to switch as any new policy will be extremely limited on coverage for your roof. If you do decide to change, you will want to make sure that your roof is in sound condition, you have a reputable roofer glance over it, and let you know if there’s anything that needs to be corrected or if it’s in sound condition.
Keep in mind that any existing damage will not be covered by the new carrier. And that goes back to that detailed inspection that they did. They will have the pictures a lot of times from the drone where it gives detailed photos of any granular loss on the roof.
The other aspect that customers need to keep in mind when shopping for insurance. Is the ethical aspect of who is selling the policy. Many captured agents are more sales-oriented than insurance professionals as they are company employees and are held to a lower standpoint. Standard insurance brokers are considered insurance professionals and held to a higher liability from a legal aspect from making sure that they offer the best to their customers.
It would be a good idea to shy away from any agent that tries to do high-pressure sales and get you to buy it over the phone and issue it the same day without going over every detail of deductibles, what is excluded, and where possible pitfalls could arise on coverage. In general, you will find many brokers that will tell you if it’s a good idea or not to switch.
Some people, specifically if they have an older roof, will have to evaluate what they have currently. And occasionally it’s like, we don’t want to diminish your coverage and what you’re paying is reasonable. So it’s not a good idea to switch. This doesn’t mean that we do not want them as customers. Some people do get upset when we tell them, Hey, it’s not a good idea.
It’s just the reality of the world that we live in. And we don’t want to increase somebody’s exposure to make a quick back off with them. Do not confuse this with me passing shade toward independent agents. They’re just doing their job as it is stipulated to them by their employer. They are handcuffed to do what their employer tells them to do, and a lot of times that includes unrealistic sales quota that severely impacts their pay and or their livelihood.
Now I want to go over some of the optional coverages that are available on home insurance. I’m not going to specifically say that these coverages are good or bad. I’m just going to explain certain situations that they apply and when you should consider them.
The first would be water and sewer backup. If you have a sump pump, then it’s a good idea to carry this coverage, as that means that the city’s sewer system can potentially back up into your home or your property is designed at a level that the basement can potentially flood. You always want to make sure that you have your sump pump routinely serviced at least once a year, and that it has battery backup as well, just in case the power goes out for extended periods.
Next would be equipment breakdown. I find this coverage less useful because there are a lot of preclusions of coverage on why something fails. Most of them do not cover power surges like your AC unit or refrigerator compressor failing from the power going out. So there are a lot of limitations on when this coverage does apply, so make sure you read that clearly before purchasing it.
The next optional coverage would be scheduled personal property. This includes guns, jewelry, furs, or anything with an abnormal market value that’s special to you. You’ll want to make sure with your specific carrier what the total amount ends up being.
So if you have items that fit in any of those categories that already have limited coverage spelled out on the policy, you’ll want to get them itemized. If it doesn’t have a common market value, you will have to get an appraisal, but this removes the deductible from it and covers it in the event it’s stolen. It loses any specific aspect as it is in the all perils coverage, typically, but make sure to make sure to read what is precluded in your policy terms.
Another aspect that falls in that same category of scheduling is personal property. It is, in general, a good idea to have a list of everything in your home at some point. You can even just record a video and save it as a backup to any of your cloud software. So, if you have Apple or Android, just have that saved in a file at home. In case there’s a total loss from a tornado or a fire, you can adequately display what you did have for a claim payout.
The next optional coverage that I’m going to go over will be earthquake coverage. You want to make sure of what geological zone you are located in. I am not aware of an earthquake policy paying out in the state of Missouri. We live not that far from Daniel Boone’s house. which was where the last major earthquake occurred, and it’s still standing. The reason why that happens is a lot of the area around here is built on two miles of thick mantle rock that’s similar to shaking the top of a table instead of creating a sinkhole or breaking and rolling. That prevents many losses from happening from earthquakes around here. Now, if you do live on sandy, silty soil, think about when you shake a box of sand with something sitting on top and it goes straight to the bottom. That’s an example of when you should consider having an earthquake depending on what your home is built on. That would include areas closer to the Mississippi River, where it’s meandered all over the place and impacted what the soil is like.
Also on earthquake insurance, typically the deductible is at least 10% of the home value. So if you have a $300,000 home, the deductible for earthquake coverage is $30,000. That is why it has limited payouts in certain states; because it’s difficult to go over that even for a cracked foundation. A lot of times it is less than that, depending on if they have to raise the foundation back up or anything of that nature.
The next area would be flood insurance. I used to be less concerned about flood insurance as you used to clearly know if you lived in a floodplain. It is different now. Many areas have flooded that have not flooded in the last 2,000 years. A recent example would be the Carolinas. So this may be a coverage that you want to consider out of the rare circumstance that the area gets 15 plus inches of rain and doesn’t know how to handle that amount of water. Standard home insurance does not cover flood, so it would always be a separate policy.
One of the last additional coverages that you should consider purchasing is identity theft protection. We’ve partnered with Aura and we have an affiliate link that is in our channel description which gives you a significant discount for their product. What they do is provide an identity monitoring service and provide coverage for if your identity is stolen up to a certain dollar amount.
So the key takeaway from this video that I want customers to take is that when you are shopping for insurance, you need to be aware of the pitfalls and the process involved when changing home insurance companies. Be ready for the inspection. Make sure you are proactive and everything on your property is well maintained before you make the change. If you have a trampoline, make sure you disclose that when you’re getting a quote. or remove it. If you have a pool, make sure it’s in good condition and properly secured, either fenced or gated. And if it’s an above-ground pool, make sure the ladder locks.
Thanks for tuning in to this episode. Please like, subscribe, or comment. If you disliked the video, let me know that as well. The next episode I will be doing is about how to prepare for your teenager driving and the impacts they’re driving will have on the cost of your insurance. Hope everyone has a great rest of their day.