There are a hundred financial rituals in a year, but none I hate more than paying the home insurance bill.
By comparison, I pay any income tax I might owe with a smile. Cable and phone bills are a joy. Property taxes, a pleasure.
Home insurance is different because it's the most out of control. Mega-size premium increases come every year or two along with not-infrequent reductions in the level of coverage. Policy holders can do nothing but pay up, or switch to a cheaper company that will inevitably close its price gap in the next year or two.
Compared to other financial products, property insurance has virtually no oversight by regulators or government. Consider banks: They were recently told they're too big to fail and thus will come under more scrutiny from regulators than they've already had. A few banks get frisky with the ads for mortgage-rate discounts and the Finance Minister makes a federal case out it.
The mutual fund industry is always getting grief from regulators, and investment advisers are increasingly being targeted as well. In the car insurance business, insurers are either government-run provincially or closely regulated private sector firms.
Home insurance isn't mandatory like car insurance, so it's not regulated in the same way. But somebody needs to pay more attention to this sector because it can't go on like this forever.
The cost of home insurance for our house has gone up 19 per cent on a year-over-year basis, which Anne Marie Thomas of InsuranceHotline.com tells me is not out of line with what she's seeing. Cost increases like this have been the norm for years now, owing to a string of catastrophic events largely connected to bad weather, she said. "It's about claims cost – insurance companies pass them along to consumers like you and I."
Insurance Bureau of Canada data show that payouts owing to weather-related disasters averaged roughly $1-billion a year from 2009-2011, which compares with $167-million in 2007 and $392-million in 2008. Other factors causing premiums to rise include the rising cost of building materials. Statistics Canada's construction price index was up 2.2 per cent in 2013 on a year-over-year basis, while the headline inflation rate was 0.5 per cent.
A tight market for tradespeople who rebuild houses has also put upward pressure on premium costs. So has aging urban infrastructure, specifically sewer systems that back up into people's basements. So has enthusiastic consumerism, which results in things like households having not just one computer but three or four.
Insurers are adjusting to these developments in a few ways. First, they're making incremental cuts in coverage. For example, the IBC says some firms now limit their coverage of electronics in a home. Second, they're doing more in-home inspections to see up close exactly what it is that they're insuring.
They're also cranking up rates. Our annual premiums, if we stay with the same company, would cross the $1,000 barrier for the first time. What options are there to cut the costs?
A common suggestion is raising the deductible (the amount you pay out of pocket when making a claim), but we've already done that. Another is qualifying for a discount by bringing over our car insurance. But that would mean rewarding a company that just socked us with a 19-per-cent premium increase by giving it more business. Unlikely.
There are other options, but they're not widely understood. The home insurance industry offers three tiers of policy – basic, the more rounded broad policy and the top-of-the-line comprehensive policy. We don't all need a comprehensive policy, but that's what Ms. Thomas of InsuranceHotline.com said is most popular.
"Most people I know, myself included, have the best insurance policy money can buy," she said. "Heaven forbid that something happens. It's better to have overpaid and have the coverage than to have underpaid and then find out, oh, man, for the sake of a couple of hundred bucks, I could have avoided all of this hassle."
The price of premium top-tier home insurance coverage keeps rising exponentially, though. And all the old clichés about shopping around offer just temporary relief. Today's bargain company is where you'll find next year's 20-per-cent premium increases.
Insurers, help us out before you burn your reputations to the ground. Highlight cheaper coverage options in plain language. Give us tools to figure out the value of the stuff we own so we don't waste money on excessive coverage. Stop acting like raising prices is the only possible answer to your business challenges.
Rob Carrick