Changes in homeowners Policies are big news

By Scott Best

Some very strange things have been happening of late, so strange that there may be a congressional investigation into the matter. Think about this question. How much less is your house worth now then it was 2 or three years ago. Many homes values have dropped as much as 50% from the value they carried just few years ago.

That’s neither a big secret nor something that Congress is likely to do anything about any time soon, so why all the buzz about homeowners insurance? Well let’s just think about that for a bit. Your home might be worth 50% less now then it was just a short time ago. Yet for thousands of Americans the cost of homeowners insurance has gone up as much as 30 to 40% over the last year.

How can that be, isn’t homeowners insurance suppose to follow the value Vs risk principal of insuring properly? It is, but lately because of the dramatic drop in home values customers have been restructuring their insurance policies to fall in line with the devaluation of their homes.

This has caused a big rift in the insurance industry. Home worth 50% less should cost 50% less to insure right? Not so according to the new thinking of the insurance industry that has seen its revenues go down by billions of dollars over the last year because of the drop in home values.

So rather than tighten their belts, a large section of the insurance industry decided to turn the tables on their own economic downslide and do a sort of reverse calculation for new insurance rates. In doing so the new rates for home insurance worked out to be as much as 40% higher for actually less coverage then the original policies.

What took place was this. Because of the decline in overall business, insurance companies raised rates; these new rates reflected an increase in revenue for the company, but at the same time devalued the homeowner’s coverage in a disproportionate fashion.

Here is an example
Home value $150,000
Average cost of insurance is $4.50 per $1,000 of value or $675 for a $150,000 home
The new way of calculation is unsure but that same home now worth $75,000 Costs $700 to insure.
Making the average cost of insurance $9.33 per $1,000 of value

Home owners are hot under the collar and insurance companies are not being very forthright about giving explanations regarding the new method of insurance calculations. Several law suits are pending. Home owners screaming foul are getting noticed in the halls of congress.  

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