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We were hoping for a return to normal in 2021. And while many of us have resumed visiting family and friends, traveling and returning to the office, the pandemic has had a lasting influence on some aspects of our life beyond our physical and mental health.
For example, supply chain disruptions and inflation appear to be unpleasant side effects of Covid that are expected to persist at least until early 2022.
If you are a homeowner, you might be wondering how this affects your bottom line. Here’s a look at how current trends are reshaping the home insurance landscape.
Supply Chain Bottlenecks Could Impact Home Insurance Claims
There has been a serious stalemate for home builders in 2021. A perfect storm of pandemic-induced supply chain disruptions, labor shortages and inflation has caused a 15-year record. in late home construction. The demand for new housing and renovation projects has driven up costs.
At first glance, this may not mean much to you. After all, if you aren’t planning on building a new home or having a renovation project underway, you might think that a construction setback isn’t affecting you.
But when a disaster like a hurricane or wildfire hits an area, the increased demand for repairs often causes a temporary increase in reconstruction costs. These costs could be further compounded by supply chain disruptions in 2022.
Suddenly, the amount of coverage you have purchased for your home may be insufficient. If disaster strikes and you need to rebuild your home, you will have to pay any amount over your home insurance limit.
âDue to supply chain issues, tight material and labor markets and inflation, it pays to think about purchasing increased home insurance protection,â says Greg Pannhausen, Product Manager Countrywide Homeowners for Farmers Insurance.
Another way to deal with unexpected spikes in local construction costs is with extended coverage or guaranteed replacement costs, if your insurer offers them. These types of coverage give you additional protection in the event of rising construction costs.
Inflation can intensify the pain of replacing belongings
The annual inflation rate from November 2020 to November 2021 was around 6.8%, according to the United States Bureau of Labor Statistics (BLS). But thanks to supply chain issues and production bottlenecks, the cost of some products is more than double that figure.
For example, the cost of living room, kitchen and dining room furniture rose about 14% nationwide from November 2020 to November 2021, according to the BLS.
Since home insurance covers your belongings, you’ll want to make sure you have sufficient coverage for personal belongings for the cost of replacing them if they are damaged or destroyed:
Make sure you have replacement cost coverage on your home insurance policy. This coverage pays to replace your damaged items with new items. If you currently have actual cash value coverage, you will only be refunded for the depreciated value of the items.
Take a home inventory to assess whether your current level of personal property coverage is sufficient. Remember, this coverage applies to all of your furniture, clothing, decorations and personal effects.
Related: Replacement cost versus actual cash surrender value in home insurance
The insurance sector plays a more active role in the fight against climate change
The insurance industry will take a closer look at the impact of climate change disasters on its customers. The National Association of Insurance Commissioners (NAIC) and state regulators released a report on how insurers can better manage climate-related risks, including the availability and affordability of insurance, as well as consumer education and awareness.
The Consumer Federation of America, the Center for Economic Justice, the Maryland Consumer Rights Coalition, and the Consumer Federation of California have called on the Federal Insurance Office (FIO) to take a more active leadership role. This would involve orienting the insurance sector towards a ânet zeroâ emissions target and also increasing protections for policyholders facing catastrophes, reduced availability of home insurance and insurance costs. higher.
The group wrote in a letter to the FIO that insurers are in a position to rethink underwriting decisions for industries that contribute to climate change, such as coal-fired power stations and pipelines.
If your home is at risk of disaster, it is a good idea to reassess your home insurance immediately. For example, human-induced climate change is likely fueling more powerful hurricanes, according to ScienceBrief, an assessment of 90 peer-reviewed scientific papers republished by the National Oceanic Atmospheric Administration (NOAA). The need for homeowners in many areas to have a hurricane insurance plan is greater than ever.
NOAA recently increased the definition of an âaverageâ Atlantic hurricane season from 12 to 14 named storms. The 2021 hurricane season ended with 21 named storms, which followed a 2020 Atlantic hurricane season of record 30 named storms.
Flood insurance is now a staple in many areas and is no longer a blanket craze that can be easily overlooked.
And the wildfire season lasts most of the year now. Climate change is considered a key driver of this trend, according to the California Department of Forestry and Fire Protection. Warmer spring and summer temperatures, a reduced snowpack, and earlier spring snowmelt created longer and more intense dry seasons.
In California, more than 3 million acres burned in 2021. This follows the 2020 wildfire season, which was considered the worst on record and saw more than 5 million acres burned in California, in Oregon and Washington.
Homeowners get forest fire insurance through a standard home insurance policy, which covers damage from forest fires, kitchen fires, and other accidents. If you are a homeowner, it is a good idea to evaluate your policy to make sure that your current levels of coverage are sufficient in the event of a disaster.