Fundamental Truths About Home Insurance
Fundamental Truths About Home Insurance
Let’s talk straight about homeowners' insurance. Whether you are a homeowner, a landlord, or the owner of a vacant dwelling (Flip), I want to pull back the curtain on how this industry works and share how I handle insurance in my own life.
Why do rates always go up?
One of the most common misconceptions is that if you don’t file a claim, your rates should stay the same. Unfortunately, that is rarely the case. At a minimum, insurance rates generally keep pace with inflation. With the Federal Reserve’s target inflation rate at 2%, you should expect your premiums to increase by at least that much every year in perpetuity—even in a "perfect" world.
However, rates also depend on how accurately carriers predict the frequency and severity of claims. According to the Insurance Information Institute, about 5.53% of homeowners (1 in 18) filed a claim in 2023, with an average cost of nearly $17,000. The most common culprits are wind, hail, water damage (like a burst pipe), and fire.
If 94.5% of people don’t file a claim, why do everyone’s rates jump? It’s because of how risk is pooled. Carriers place you in a "box" with similar risks.
●Box A: Homes built in 2015 with tile roofs, stucco exteriors, and owners with high credit scores.
●Box B: 1950s block homes with shingle roofs and original galvanized pipes.
If those galvanized pipes start leaking across the country, the carrier pays out more than expected. To cover those losses, the rate goes up for everyone in that box, not just the individual who filed the claim. Sharing in losses is the fundamental tenet of insurance.
Why the sudden spike in recent years?
When inflation surged in 2022, it caught carriers off guard. The gap between what they expected to pay and what they actually paid was massive. Some companies were losing 20–25 cents on every dollar.
Arizona was hit particularly hard. Between 2021 and 2024, the typical Arizona homeowner saw their rates increase by more than $700. This was driven by a "perfect storm" of inflation, increased wildfire risk, and missed projections. The good news? As inflation levels off, carriers can predict costs more accurately, and we are finally seeing rates stabilize.
What is the average rate in Arizona?
The answer depends on which "box" you fit into. Factors like the age of the home, your claims history, and your credit score (which carriers use as a predictor for future claims) all play a role. Because of these variables, two neighbors can have wildly different premiums.
Current estimates for a $300k home in Arizona vary by source: Bankrate: $2,331, MoneyGeek: $2,602, and NerdWallet: $2,110
Generally, vacant homes cost the most to insure, primary residences the least, and landlord policies fall somewhere in the middle. In my experience, if you have good credit in Phoenix or Tucson, you’re likely looking at $1,500–$1,800.
What do I do as an insurance agent?
I’ll be open with you: I live in a rural part of Arizona (not a high wildfire zone) and pay $1,600 for a $350k home. Here is my personal strategy:
I shop around every few years.
I manage my deductible. I currently keep mine at $2,500 to lower the premium.
I mitigate my own losses. When our water heater leaked recently, I didn't file a claim. We cleaned it, dried it out, and hired a local contractor for the $5,000 repair.
The $7.5k Rule: I generally will not file a property claim for less than $7,500. I always get a repair estimate before calling the insurance company to ensure the damage significantly exceeds my deductible. Liability claims should always be filed immediately.
Is it time to shop?
If you haven't compared rates in a couple of years, now is the time. Carriers are becoming "cautiously aggressive," meaning they are offering competitive rates for the specific risks they want to bring onto their books.
Gila Insurance Group is a broker. We represent five of the top ten homeowners' insurance companies, and we’re here to help you find the right "box" at the right price. To get a quote, visit www.GilaInsurance.com/azreia. We can help you with insurance for your auto, home, and investment properties.