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How the Los Angeles Wildfires Affect Insurance Rates in Nebraska and the Midwest

 

How the Los Angeles Wildfires Affect Insurance Rates in Nebraska and the Midwest

What’s happening in and around Los Angeles is tragic. Hard stop.  

Beyond the lives that these wildfires have claimed and the displaced families they’ve created, the fires are bound to have ripple effects that will be felt across the country.  

As of now, insured losses are estimated to be near $20 billion, according to JP Morgan 

If you’re sitting in the Midwest, far away from the wildfires in California or the Hurricanes that hit Florida and the gulf coast earlier this year, you may not realize the long-term impacts it can have on your wallet. The way insurance carriers often calculate premiums is by spreading risks across their policies. The states where these events occur take on more of the percentage increase, but that’s not entirely true.  

Bankrate, a well-known personal finance website, says the average cost of homeowners insurance on a $300,000 home is $2,181. However, for a $300,000 home in Nebraska, the average is $5,544. In fact, the Wall Street Journal points out that, in Omaha, more than a quarter of homeowners with mortgages spend more than half of their monthly mortgage payment on taxes and insurance, according to ICE. 

When hurricanes take out entire cities, floods decimate communities and wildfires bring entire regions to the ground, that can affect your rate, too.  

Insurance carriers also buy insurance called “reinsurance,” which protects them if they face claims that far exceed their expectations. So even though you may not have an insurance carrier that covers California property, it may have issued reinsurance to one of those other carriers.   

How Your Insurance Rate is Calculated 

There are dozens of factors that go into pricing an insurance premium. To start, a carrier is going to look at the age and condition of your home, the materials used in its construction, and the overall value of your property. Also included in this assessment is the cost of replacing your home in case of a total loss, which can vary depending on local construction costs. That’s the starting point.  

The state you’re in can be significantly impacted even if you don’t have a claim. If a hailstorm rolls through and thousands of roofs need to be replaced, your homeowner's insurance rate is likely to go up – even if you didn’t need your roof to be replaced. The reinsurance market can play a factor, as mentioned earlier.  

On an individual level, however, there are areas that you can focus on to lower your rates or help prevent a rate increase.  

  • Claims history: Your personal insurance history plays a crucial role. A history of filing claims can make you appear as a higher risk to insurers, potentially leading to higher premiums.  
  • Location: The location of your home can significantly impact your homeowners insurance rate. Insurers assess the risk associated with your neighborhood, considering factors such as crime rates, proximity to a fire station, and the likelihood of natural disasters like tornadoes or floods. Local building codes and the quality of local emergency services can influence your rate, as well. 
  • Home safety and security: The specific characteristics of your home also play a role in determining your insurance costs. Factors such as the age of the home, the type of roofing material, the presence of a security system, and the overall condition of the property are all taken into account. Homes with modern electrical and plumbing systems, as well as those built with fire-resistant materials, often receive lower rates.  

Understanding Reinsurance 

While Nebraska might not be directly affected by national natural disasters such as wildfires in California or hurricanes in Florida, these events can still impact your insurance premiums.  

To be clear: The claims that happen in your area will carry significant weight on your insurance premium, way more than events happening outside of your state. However, that isn’t always the entire case.  

When large-scale natural disasters occur, insurance companies face significant financial losses. To mitigate these losses, they buy reinsurance from a separate insurance carrier. If the carrier on your homeowner’s policy is facing a reinsurance claim, they may raise rates across all of their policy holders. This phenomenon is known as the “ripple effect.”  

Finally, even if your carrier isn’t involved in the reinsurance market, you still could face an increase based on the perception of risk. For example, we’ve seen some wildfires hitting Colorado in the past few years. A carrier, in theory, could decide that neighboring states have an elevated risk, too. Nebraska, as a neighboring state, could see an increase based on that perception of risk.  

It may not seem fair – and it may not be totally fair. But it certainly beats the alternative of not being able to buy insurance for your home, which is what many people in California are facing as carriers pull out of the state completely.  

Still, there are steps you can take to help manage your insurance rate. 

So, How Can I Lower My Homeowners Insurance Rate?  

There are three ways to lower your rate that go beyond adding safety and security features or avoiding unnecessary claims.  

Your Broker 

When you work with an independent agent who has access to multiple carriers and has built relationships with the underwriters, it can be a huge advantage as you receive insurance quotes.  

At Ellerbrock-Norris, we don’t quote business just to quote business. We focus on what we call “top-of-stack submissions,” meaning when a carrier receives our request for new policy, it goes to the top of their queue. Why? Because we approach risk holistically, looking for other areas to help you save money. 

Your Carrier 

Not every carrier is the same. Some choose not to write business in California due to the recent history of wildfires and thus are not as affected by this round of natural disasters. However, it may be harder to get a policy covered by that carrier’s underwriting.  

You may also receive discounts by bundling multiple policies, like home and auto, or by having a low claims history. These discounts can vary from carrier to carrier so work with your independent broker who can get the best deal for you. 

 Your Overall Risk Management Plan 

Most importantly as it relates to any insurance product is to step outside of the insurance world and think more holistically. We focus on risk management – not just insurance.  

We’ll be able to craft a plan that includes the right insurance products for you, sure, but also goes beyond. What happens if the home burns down and you’re in it? What happens if someone else is injured on your property? What happens if….?  

We’ll walk through various scenarios and questions with you to see what needs coverage, where you have gaps in your current plan, and advise you on a path forward.  

Get started today by contacting us. A member of our team will be in touch shortly to get you started on the path to holistic risk management.  

 

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