If your homeowners insurance renewal surprised you yet again this year, you are not alone. Many Michiganders are seeing significant increases in their insurance premiums, even if they have not filed a claim.
At Cardinal Insurance Group, this is one of the most common questions we have been hearing over the last 2 years from clients across Traverse City and throughout Michigan:
Why is Michigan home insurance getting so expensive?
The answer is not just one thing. Several industry trends are driving higher homeowners insurance costs across Michigan and the rest of the country.
Here are the biggest factors behind rising Michigan home insurance premiums.
Rising Construction and Rebuilding Costs
One of the biggest drivers of higher homeowners insurance premiums in Michigan is the rising cost to rebuild homes.
Home insurance is based on replacement cost, which is the amount it would take to rebuild your home after a total loss. Over the past several years, the cost of building materials like lumber, roofing materials, drywall, and electrical components has increased significantly.
Labor costs have also risen due to shortages in skilled trades as well as higher demand.
Because insurance companies must insure homes for their full replacement value, (as well as pay to tear down what remains of a home after a total loss), higher rebuilding costs often lead directly to higher insurance premiums.
More Severe Weather and Storm Damage
Yes, even Michigan has experienced an increase in severe weather events over the past several years.
Windstorms, hail, heavy snow, and severe thunderstorms have caused billions of dollars in property damage across the Midwest. As these events become more frequent and more costly, insurance companies pay out more claims.
When insurers experience larger and more frequent losses, premiums often increase across the market to help offset those costs.
Higher Claim Frequency
Insurance companies are also seeing an increase in the number of claims filed by homeowners.
Water damage, roof damage, and weather related losses have become more common. Even smaller claims can add up quickly when they occur across thousands of policies.
Insurance companies use claims data to determine pricing, and when claims increase across a region, premiums typically rise as well.
Rising Reinsurance Costs
There has always been talk around the Florida floods or the California wild fires being ‘their’ problem and how it can’t possibly be the reason for Michigan property rate increases.
In fact, just weeks ago I had a new client tell me that her agent said those out of state claims do NOT affect the rates we pay here. Unfortunately her agent is wrong. And she is wrong because of reinsurance factors.
Most homeowners are not aware that insurance companies also purchase insurance themselves. This is called reinsurance.
Reinsurance helps protect insurance carriers from extremely large losses after major disasters such as hurricanes, wildfires, and severe storm systems.
When an insurance company experiences large losses from catastrophic events, reinsurance helps absorb some of that financial risk so the insurer can continue operating and paying claims.
To understand why this matters, consider what happens during a total home loss, such as a house fire.
The insurance company does not just replace the structure of the home. They must also replace the homeowner’s personal belongings, cover detached structures like garages or sheds, and pay for temporary living expenses while the home is being rebuilt.
All of these coverages add up quickly and create a much larger claim than many homeowners realize.
Example: $350,000 dwelling coverage
As you can see, the total potential insurance claim can reach $700,000 or more once contents, loss of use, and detached structures are included. The insurance company may only want to be on the hook for $500,000 on each property in certain areas due to large concentrations of clients, so they then buy the additional exposure in reinsurance.
When catastrophic events increase across the country, these types of large claims happen more frequently and at much higher dollar amounts, forcing reinsurance to be ‘used’ on a much more frequent basis, which then increases that cost for carriers.
In fact, over the last few years, the cost of reinsurance has increased dramatically worldwide. As catastrophic events become more common and more expensive, reinsurance is being used more frequently and at higher levels.
Those rising costs are ultimately passed down to insurance companies, who must factor them into the premiums homeowners pay for coverage.
Inflation and Repair Costs
We have heard it so many times, because yes, inflation has affected nearly every part of the economy, including home repairs.
The cost of construction materials, appliances, labor, and transportation has increased significantly over the past several years. These higher costs mean that insurance companies must pay more when a claim occurs.
As the cost of claims rises, insurance premiums naturally follow. What many people outside the industry don’t realize is that insurance companies often operate on very thin margins. In property insurance, for example, carriers typically pay out between $0.90 and $1.10 in claims and expenses for every $1.00 collected in premium. They actually make money on their investments by investing our premiums.
What Michigan Homeowners Can Do
While homeowners cannot control industry trends like inflation or severe weather, there are still steps you can take to manage your home insurance costs.
Working with an independent insurance agency can help ensure you have the right coverage while also comparing multiple insurance companies for competitive pricing.
At Cardinal Insurance Group, we help Michigan homeowners review their coverage, compare options across several carriers, and make sure their policies are structured properly for both protection and value.
What does this mean for you?”
In today’s Michigan market, most homeowners we work with fall into these ranges:
- $250K–$400K home → typically $600–$1,000/year
- $400K–$700K home → typically $1,000–$1,600/year
- $700K+ home → typically $1,600+/year
- All of these are dependent on endorsements, scheduling items etc.
Every situation is different, but this gives you a realistic starting point.
Wondering If You Are Paying Too Much for Home Insurance?
If your homeowners insurance premium has increased recently, it may be worth taking a closer look at your coverage. Just be careful to understand what you are actually buying. Saving $100 a year won’t mean much if your new policy cuts corners on things like replacement cost or shifts you to a percentage-based deductible that could cost you thousands more out of pocket.
No two home insurance policies are the same. Insurance companies take a standard form and customize it with their own endorsements, limitations, and exclusions. That is why it is so important to work with someone who is educating you, not just quoting the lowest price.
At Cardinal Insurance Group, we work with multiple carriers to help Michigan homeowners find the right balance between protection and cost.
If you would like a second opinion on your current policy, we are here to help. Request a quote or schedule a coverage review today.
Cardinal Insurance Group Trusted Guidance. Personalized Service
Written by Linda M. Fisher, AAI, CIC, CPRIA, CPRM, LIC, LUTCF – Agency Founder & Owner