Special thanks to contributor Jordan Bryan, CAPI, API, vice president, and shareholder at Ross & Yerger.
It usually begins with a number that feels wrong. Your client calls, agitated. Their homeowners insurance renewal arrived in the mail, and the premium has increased—by a lot. Sound familiar? The house has not changed in the past year. There have been no losses. The absence of any claims makes the increased cost hit harder, much harder. And so the question surfaces: Why this big cost increase?
Dramatic Cost Increases Are Not Unique to Insurance
Imagine the contractor who submits a bid to build a home for $500,000. Several months pass by before construction can begin. Before the first board is lifted or the first nail set—the price moves. The contractor calls to explain that the cost is now $700,000.
The contractor explains that, while nothing about the house changed, the economics of the marketplace have changed. Costs for materials have increased since the bid was submitted. Demand for subcontractors has increased. Tariffs, rising energy costs, and supply chain delays have also caused construction costs to become much more volatile.
After a conversation that moves past the cost increase and explains what caused it, the contractor receives the green light to proceed as planned. Of course, if the contractor had simply said, "Prices are going up everywhere," the conversation likely would not have gone nearly as well.
Homeowners insurance operates on the same principle. Yet, when the cost of a homeowners policy rises, the explanation provided to clients is far too often reduced to that very phrase: "Rates are going up everywhere." While technically accurate, this response does little to advance understanding. In many cases, it reinforces the perception that insurance pricing is arbitrary rather than rooted in measurable data and evolving risk.
Since our role is to help clients understand and manage risk, we should ask ourselves a simple question: Are we doing enough to explain why the cost of transferring that risk is increasing?
Our Biggest Challenge: Replacing Frustration with Understanding
Most clients view premium increases through their own personal lens. They look at their own experience and reasonably conclude that little has changed.
"I haven't had a claim."
"Nothing has changed with my home."
"Why am I paying more?"
While these questions are both common and understandable, they also reflect the common public misconception of how insurance works.
As all risk advisers know, insurance pricing is driven both by the prior loss experience of pooled risks and forward-looking projections of future losses (where permitted by regulators). As a result, factors that are geographic, systemic, and forward-looking often have far greater influence on pricing than anything an individual policyholder has done.
The result is predictable: premiums continue to rise, even when nothing appears to have changed from the client's perspective. When these broader forces are not clearly explained, consumer frustration prevails. And that frustration is often directed at the only visible participant in the transaction—the adviser.
Start with This: What Factors Determine the Cost?
Before attempting to explain why premiums are rising, it is helpful to reframe the discussion around a more fundamental question: What determines the cost of homeowners insurance in the first place?
We can start by explaining that rate making focuses on calculating the costs for three primary components.
Expected losses
Operating and claim-related expenses
The cost of capital required to absorb catastrophic risk
While explaining these factors in the abstract fails to engage most consumers, the conversation can become far more concrete by showing clients where a premium dollar actually goes. Almost always, clients are surprised because the allocation is rarely what they expected.
Table 1. Industry Average Homeowners Premium Component Costs
Component
% of Premium
Claims paid
65.2%
Claim adjustment expense
8.1%
Agent commissions
11.6%
Acquisition and underwriting
6.5%
General administration
5.1%
Taxes and assessments
2.7%
Policyholder dividends
0.4%
Underwriting margin
0.4%
Total
100.0%
Source: 2024 National Association of Insurance Commissioners' homeowners expense data.
Once seen in this light, several observations emerge. First, clients learn the majority of each premium dollar—well over 70 percent—is allocated to paying claims and the expenses associated with settling those claims. Second, distribution costs, including commissions, along with taxes and operating expenses, consume much of the remainder. These are the necessary costs of delivering and administering coverage, but they are not the primary drivers of premium volatility. Finally, the margin available to insurers is modest. In many years, homeowners insurers operate at or near breakeven on underwriting results, with overall profitability depending largely on investment income.
For many clients, this exhibit reframes the issue entirely and allows a more instructive question to emerge: If most of the premium is ultimately used to pay claims, what should we expect to happen when the cost of those claims increases?
Move to Why: Understanding the Forces Behind Rising Premiums
With that foundation in place, we can shift the discussion from what is happening to why it is happening. The following are the primary drivers of increased homeowners premiums.
Catastrophic losses are increasing. The most significant driver is the rising cost of catastrophic losses: Weather-related events are occurring more frequently and producing larger losses than in prior decades. Because these losses are shared across the broader insurance system, their impact extends well beyond the regions directly affected.
The cost to rebuild has increased. Construction costs, labor shortages, tariffs, and supply chain pressures have all contributed to a sharp rise in replacement costs. Even when claim frequency remains stable, higher severity leads directly to higher premiums. This is especially true when contractors are aware that the homeowner's insurer provides guaranteed replacement cost coverage when adjusting claims.
Risk is being evaluated differently. Insurers are also placing greater reliance on forward-looking models that incorporate emerging environmental and geographic risks. Areas that historically experienced limited losses are now being reassessed, and rate modeling seeks to integrate expected future conditions rather than relying on historical averages.
The cost of reinsurance has increased. Behind the scenes, insurers are facing higher costs to transfer their own catastrophic exposure through reinsurance. Few clients I've spoken with are aware that insurance companies purchase insurance from reinsurance companies to ensure they will have sufficient funds to pay all claims after a catastrophic event.
Legal and regulatory pressures are contributing. Finally, litigation trends and regulatory frameworks have introduced additional cost pressures. While not visible to policyholders, these costs are rising and embedded in premium calculations.
Elevating the Client Conversation
Explaining these dynamics requires more than listing factors. Instead of saying, "Your premium increased because rates went up," we can instead say, "Let's walk through what has changed in the risk environment—and how those changes affect the cost of protecting your home."
This approach doesn't instantly eliminate the frustration over increasing costs, but it elevates the risk adviser from being reactive and defensive to an industry insider who can educate and advise. This approach provides the important missing context and clarity that we cannot expect clients to have without our help. That increased clarity—however partial it may be—can forge increased confidence and trust from clients who rely on us to help make sense of it all.
Conclusion
The rising cost of homeowners insurance is not the result of a single issue, nor is it arbitrary. It reflects a convergence of forces: increasing catastrophe losses, rising replacement costs, evolving risk models, higher capital costs, and growing legal complexity. To consumers, these increases can feel opportunistic: another unexplained number, another money grab by big insurance.
When clients understand how their premium dollar is actually allocated, and how those underlying costs are increasing, the conversation shifts. What was once viewed as an unexplained increase becomes a logical outcome of a changing risk environment. For insurance professionals, that shift represents an opportunity—not simply to explain pricing, but to reinforce the value of providing thoughtful, well-structured personal risk management.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
Special thanks to contributor Jordan Bryan, CAPI, API, vice president, and shareholder at Ross & Yerger.
It usually begins with a number that feels wrong. Your client calls, agitated. Their homeowners insurance renewal arrived in the mail, and the premium has increased—by a lot. Sound familiar? The house has not changed in the past year. There have been no losses. The absence of any claims makes the increased cost hit harder, much harder. And so the question surfaces: Why this big cost increase?
Dramatic Cost Increases Are Not Unique to Insurance
Imagine the contractor who submits a bid to build a home for $500,000. Several months pass by before construction can begin. Before the first board is lifted or the first nail set—the price moves. The contractor calls to explain that the cost is now $700,000.
The contractor explains that, while nothing about the house changed, the economics of the marketplace have changed. Costs for materials have increased since the bid was submitted. Demand for subcontractors has increased. Tariffs, rising energy costs, and supply chain delays have also caused construction costs to become much more volatile.
After a conversation that moves past the cost increase and explains what caused it, the contractor receives the green light to proceed as planned. Of course, if the contractor had simply said, "Prices are going up everywhere," the conversation likely would not have gone nearly as well.
Homeowners insurance operates on the same principle. Yet, when the cost of a homeowners policy rises, the explanation provided to clients is far too often reduced to that very phrase: "Rates are going up everywhere." While technically accurate, this response does little to advance understanding. In many cases, it reinforces the perception that insurance pricing is arbitrary rather than rooted in measurable data and evolving risk.
Since our role is to help clients understand and manage risk, we should ask ourselves a simple question: Are we doing enough to explain why the cost of transferring that risk is increasing?
Our Biggest Challenge: Replacing Frustration with Understanding
Most clients view premium increases through their own personal lens. They look at their own experience and reasonably conclude that little has changed.
While these questions are both common and understandable, they also reflect the common public misconception of how insurance works.
As all risk advisers know, insurance pricing is driven both by the prior loss experience of pooled risks and forward-looking projections of future losses (where permitted by regulators). As a result, factors that are geographic, systemic, and forward-looking often have far greater influence on pricing than anything an individual policyholder has done.
The result is predictable: premiums continue to rise, even when nothing appears to have changed from the client's perspective. When these broader forces are not clearly explained, consumer frustration prevails. And that frustration is often directed at the only visible participant in the transaction—the adviser.
Start with This: What Factors Determine the Cost?
Before attempting to explain why premiums are rising, it is helpful to reframe the discussion around a more fundamental question: What determines the cost of homeowners insurance in the first place?
We can start by explaining that rate making focuses on calculating the costs for three primary components.
While explaining these factors in the abstract fails to engage most consumers, the conversation can become far more concrete by showing clients where a premium dollar actually goes. Almost always, clients are surprised because the allocation is rarely what they expected.
Source: 2024 National Association of Insurance Commissioners' homeowners expense data.
Once seen in this light, several observations emerge. First, clients learn the majority of each premium dollar—well over 70 percent—is allocated to paying claims and the expenses associated with settling those claims. Second, distribution costs, including commissions, along with taxes and operating expenses, consume much of the remainder. These are the necessary costs of delivering and administering coverage, but they are not the primary drivers of premium volatility. Finally, the margin available to insurers is modest. In many years, homeowners insurers operate at or near breakeven on underwriting results, with overall profitability depending largely on investment income.
For many clients, this exhibit reframes the issue entirely and allows a more instructive question to emerge: If most of the premium is ultimately used to pay claims, what should we expect to happen when the cost of those claims increases?
Move to Why: Understanding the Forces Behind Rising Premiums
With that foundation in place, we can shift the discussion from what is happening to why it is happening. The following are the primary drivers of increased homeowners premiums.
Elevating the Client Conversation
Explaining these dynamics requires more than listing factors. Instead of saying, "Your premium increased because rates went up," we can instead say, "Let's walk through what has changed in the risk environment—and how those changes affect the cost of protecting your home."
This approach doesn't instantly eliminate the frustration over increasing costs, but it elevates the risk adviser from being reactive and defensive to an industry insider who can educate and advise. This approach provides the important missing context and clarity that we cannot expect clients to have without our help. That increased clarity—however partial it may be—can forge increased confidence and trust from clients who rely on us to help make sense of it all.
Conclusion
The rising cost of homeowners insurance is not the result of a single issue, nor is it arbitrary. It reflects a convergence of forces: increasing catastrophe losses, rising replacement costs, evolving risk models, higher capital costs, and growing legal complexity. To consumers, these increases can feel opportunistic: another unexplained number, another money grab by big insurance.
When clients understand how their premium dollar is actually allocated, and how those underlying costs are increasing, the conversation shifts. What was once viewed as an unexplained increase becomes a logical outcome of a changing risk environment. For insurance professionals, that shift represents an opportunity—not simply to explain pricing, but to reinforce the value of providing thoughtful, well-structured personal risk management.
Sources
"Facts + Statistics: Homeowners and Renters Insurance," Insurance Information Institute, accessed on June 8, 2026.
Matteo Carbone, "Can InsurTech Fix Homeowners Insurance?," Insurance Thought Leadership, August 26, 2025.
"S&P Report: Homeowners Insurers Net Combined Ratio over 110," Professional Insurance Agents Western Alliance, May 28, 2024.
Jason Woleben, "US Homeowners Insurers' Net Combined Ratio Surges Past 110%, S&P Global, May 21, 2024.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.