(Money Magazine) -- As if it weren't bad enough that home prices are going down (way down), the cost of homeowners insurance is also moving in the wrong direction: up (in some areas, way up).
And the worst increases aren't confined to the hurricane-ravaged Gulf region. Just ask Paula Aschettino, who lives on Cape Cod, Mass., which hasn't seen a major storm since 1991. Yet in the past two years, her premium has jumped 50% to $4,800 a year.
"My increase in premiums is outrageous," says Aschettino. "Up here we just don't see that kind of damage."
Granted, not every homeowner has suffered premium hikes of that magnitude lately. The most dramatic increases, ranging from 20% to a whopping 100% over the past five years, are showing up in coastal areas.
But rates are also on the rise in midwestern states because of weather nasties like tornadoes and hailstorms. Missouri, for example, saw rates ratchet 40% higher after hailstorms caused $1.9 billion in damage in 2001.
The good news: There are steps you can take to lower your premiums no matter where you live. But to devise your strategy, you first need to understand what's behind the price hikes and how insurers are changing the rules of the game.
On the face of it, the reason for higher premiums is obvious: bad weather, lots of it. In 1992, Hurricane Andrew inflicted about $25 billion in damage on South Florida, $15.5 billion of which came out of insurers' pockets.
A hurricane the size of Andrew was supposed to happen only once every few decades, but nobody told that to Katrina, Wilma, Gustav and Ike. All caused billions in damage.
The financial hit led insurers to devise new ways to assess their risk. Under the old method, they calculated the odds of a major storm based on 30 to 100 years of weather history.
But one by one, companies have switched to a model that instead focuses on the past five years - a period of intense hurricane activity. Not surprisingly, that puts a much higher probability on the Big One striking - somewhere, sometime soon. Up and away go the rates.
Consumer advocates, though, aren't buying the new methodology. Insurers' models, they say, are supposed to spread risk out over long periods, keeping premiums steady through both calm and turbulent times. Shifting to such short-term history as a basis for rates, they argue, is a bit like adjusting a baseball player's salary based on his past five games.
"Insurers came after Hurricane Andrew with new models and said, 'Trust us, we know what we're doing now,' " says Birny Birnbaum, executive director of the Center for Economic Justice, a nonprofit consumer advocacy group.
But after a few storms they were back for more rate increases. "That doesn't make sense," he says. Regulators increasingly agree and often turn down insurance company requests for big rate increases.
But when commissioners hold the line, that can lead to a different problem. Rather than write policies at the lower rates, some carriers simply stop serving the area.
Since 2004, for example, Allstate has written 500,000 fewer policies in Florida. State Farm has virtually stopped writing new policies there and is not renewing wind policies for homeowners who live within a mile or so of the beach.
As a result, instead of many insurers competing for your business and keeping rates in check, you might have only one, which charges you as if you're Donald Trump - or even worse, no private insurers at all.
Most states sponsor backup insurers that will issue a policy if no private insurer will, but their rates are usually among the highest. Some insurers, regulators and lawmakers are pushing for a federal program to back insurers if a mega-catastrophe does strike, and that could bring rate relief. But there's no indication if or when it will pass.Don't wait for Washington. Try these tactics to lower your insurance bill now.
Challenge your flood zone. If your community participates in the federal flood insurance program, buy the coverage. As Oklahoma insurance commissioner Kim Holland says, "It floods anywhere it rains." In fact, a third of claims paid out by the national flood insurance program last year were in what were deemed low-risk areas.
But if you have flood insurance already, there's a chance you're paying too much in premiums. Flood maps are redrawn frequently, often putting homes that were in high-risk flood areas, where the premium can cost as much as $2,766 annually, into low- and moderate-risk areas, which have premiums between $119 and $1,385.
Your insurance agent could have missed this. To check your status, go to floodsmart.gov and insert your address - you'll see how much you should be paying.
If FEMA's site says your home is a high risk but you think it's not, you can file a petition to amend the flood maps. FEMA might rightfully judge that a wide area is at risk of a flood, but if your property has superior drainage or your home is built on high ground, FEMA can be persuaded to take your home out of the zone.
You'll have to pay a small filing fee and also spend a few hundred dollars to hire a surveyor to analyze your home's risk, but your premium could be cut in half if FEMA relents. To learn more about the process, go to the Homeowners/Renters page on FEMA's Web site.
Get a CLUE. Insurers keep a record of every burst pipe, broken window and cracked ceiling that is put in a claim (or sometimes even inquired about) on a home. They share the information with one another in databases, the largest of which is the Comprehensive Loss Underwriting Exchange (CLUE).
If your home has a history of water damage or you've made several claims recently, any insurer could find out and might charge you extra. But as with credit reports, mistakes can creep into CLUE reports, unnecessarily driving rates up.
Luckily, the same act that makes free credit reports available to you every year also lets you get a free CLUE report. You can access yours at choicetrust.com. If you believe that your report contains errors, go to consumerdisclosure.com, a related Web site.
Don't over- (or under-) insure. Your policy should cover 100% of what it would cost to rebuild your home - not the home's value, which would include the land underneath it. That's why a $750,000 beach cottage on prime real estate might be insured for only $200,000.
Your insurance agent probably has a calculator that will give you a rough estimate, but if your home has historic detailing or unique materials, you might want to hire a builder to come to your home and give an estimate (given the state of the housing market, he's probably not doing anything anyway).
Also, ask if your insurer offers "guaranteed replacement" coverage, which protects you from runaway construction costs that can happen in the wake of a destructive hurricane.
Take a risk. Moving from a $500 deductible to a $1,000 deductible can save you about 20% on your premium. Your emergency fund should take care of small losses, so take the highest deductible that it can cover (leave room for a non-home-related emergency, since those happen too).
As an added bonus, having a higher deductible will also keep you from making frequent claims, which is one of the main factors behind rate hikes and dropped policies.
Don't be loyal. Some insurers give long-time customers up to a 10% discount, but that can pale in comparison with the savings from switching insurers.
At least once every two years, get a quote from another insurer (or more, if they are available) to see if your company still gives you the best deal, advises Mario Morales of MetLife Auto & Home. You can also get quotes from InsWeb.com or Insure.com.
If you've been forced to take a policy from the state-sponsored insurer, check even more often. In the past few years, some high-premium states like Florida and Texas have offered financial incentives to private insurers to get them to write more coastal policies, and some are doing it.
Keep good credit. Just as credit-card companies look at your credit score to determine your interest rate, insurance companies keep an insurance score (not publicly available) to estimate your likelihood of filing a claim.
Turns out, a lot of the stuff that keeps your credit score high also helps your insurance score. Pay bills on time, limit the number of credit cards you hold, and don't finance several major purchases at once to keep your score attractive.
Do that and you could be looking at a doubleheader: lower credit-card bills and savings on your homeowners premium.
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