In Seattle and the surrounding areas, the topic of “difficulty in buying a house” has been frequently discussed in recent years. But little did many know that after purchasing their dream homes, the high cost of maintaining them, or “house upkeep expenses,” is becoming a pressing issue for many. Among these expenses, the soaring prices of homeowner’s insurance stand out as particularly alarming.
According to some Seattle residents interviewed by local media, their insurance premiums have increased by up to 40% this year.
“This is truly disheartening,” said Jenny Shannon, a 40-year-old nonprofit organization staff member. Shannon shared that the insurance premiums for the two policies she had for her North Beacon Hill apartment have risen by nearly $1,700 this year.
“I can’t afford it now,” she expressed. “As a single mother raising a toddling child, along with the rising childcare costs and living expenses in Seattle, my budget simply doesn’t have room to handle such unexpected price hikes.” Shannon mentioned that she had temporarily suspended one policy to find a way to balance her expenses.
Before the mortgage is paid off, homeowner’s insurance is a necessity that can be paid directly by the homeowner or included in the monthly mortgage payments. With other costs rising, such as car insurance, groceries, and taxes, this price hike represents another blow to some homeowner’s budgets. For prospective homebuyers, this presents an additional cost on top of the high interest rates and steadily climbing house prices, potentially increasing their monthly payments and decreasing their purchasing power.
The state’s Insurance Commissioner’s Office, the regulatory agency that approves rate increases, stated that the average insurance cost for single-family homes in Washington rose by over 16% in 2023 and nearly 12% this year. There is no available data on apartment insurance from the state government, but a spokesperson for the Insurance Commissioner’s Office noted that similar factors may be driving the push for rate hikes.
Several factors contribute to the rate increases, ranging from inflation to insurance costs and wildfire risks.
Inflation is a major factor. As the prices of lumber, materials, and labor increase, repairs and replacements for homes become more expensive. “Everything in our economy is going up,” expressed Mark Sektnan, Vice President of Government Affairs for the American Property Casualty Insurance Association. “I fail to see why we’re surprised by insurance rate hikes.”
Seattle insurance agent Dave Newman mentioned that claim costs could also be rising as damaged homes today are larger, with higher rebuilding costs. “Many of the houses today are huge,” Newman stated. “They range from 3,000 to 4,000 square feet, not only with natural gas, heating, plumbing, and electricity. They also have air conditioning and fiber optics, with intricate systems that drive up construction and replacement costs for burned-down homes.”
Premiums are insufficient to cover the explosive claim costs, leading to most insurance companies operating at a deficit. Sektnan noted that in 2023, for every $1 collected in premiums, insurance companies paid out $1.11 in claims, meaning a loss of 11 cents for every $1 collected. According to the Insurance Commissioner’s data, Washington state’s household claim costs increased from $1.36 billion in 2021 to $1.84 billion in 2022, expected to surpass $2 billion in 2023.
The past few years of premium increases aim to compensate for relatively lower increases in previous years. In 2022, rates on average rose by 3.9%. Over a six-year period from 2016 to 2021, there were five years where the average increase was below 2%.
Sektnan explained that insurance companies issuing policies in Washington state require a year to gather specific state data to prove the reasonableness of new rate plans, obtain regulatory approval, and then introduce them to the market.
Despite the challenges, residents can still lower their premiums by increasing their deductibles. Jeffrey Flogel, a corporate financial manager, mentioned that increasing his deductible from $1,000 to 2% of the home’s value reduced his premium from $1,838 to $1,262.
Insurance broker Toni Matous in Seattle emphasized the need for a shift in mindset, viewing insurance as protection against severe damages or total losses to avoid making claims for minor amounts easily covered by personal savings.