"Why Are My Homeowners Insurance Premiums Going Up?"

If you find yourself asking this question, you are not alone. With home insurance premiums rising not only in Arizona but nationwide, especially since 2022, consumers are rightly asking what’s causing these increases and what they can do about them. Consumers living in high-risk or disaster-prone areas may be seeing even more significant spikes. The Arizona Department of Insurance and Financial Institutions (DIFI) recognizes the negative impact to consumers and is committed to providing consumers resources to mitigate the risk to their home that may increase the availability and affordability of homeowners insurance. This page explains some of the prominent factors affecting homeowners insurance premiums in Arizona and mitigation efforts you can take to reduce the risk to your home.

Basic Factors Affecting the Cost of Homeowners Insurance

The price insurance companies charge for their policies are determined by the likelihood that someone will make a claim on the policy and what the cost to handle that claim may be. These are the basic factors that insurers consider in determining your premium:

• Selected coverage type, limits, and deductibles all contribute to premium cost. Homeowner policies are tailored to meet the coverage needs of individual homeowners. Every homeowner has decision points within a policy where they select coverage amounts and deductibles that all contribute to the final cost of the policy. If you select higher limits for your dwelling, personal property, loss of use, or liability coverage, you will see an increase in premium. This includes your decision to buy a policy that covers actual replacement cost versus receiving the market value of the home should it be lost entirely.
• Insurers will look to see where your home is located. Homes in locations at greater risk of certain perils – such as windstorms, fires (including wildfires), ice, snow, and hail – increases the likelihood that someone will file a claim on the policy and therefore may increase the premium.
• Insurers will consider the condition of your property. The history of your property, the type of property you own, and how well you’ve maintained your home and any steps you have taken to reduce the risk of loss to your home will also impact your premiums.
• Insurers will consider your claims history. If you have made any claims against your homeowners insurance policy in the past, this may impact your premiums. 

Factors Driving Up the Cost of Homeowners Insurance

• Increases in the severity and number of natural disasters. Arizona has experienced increases in the severity of storms and natural disasters. This means our homes are more frequently exposed to natural disasters and catastrophic events, driving up insurance costs due to increases in the number of claims and severity of losses. Additionally, due to Arizona’s dry climate and expanding development in wildland-urban interfaces (the line, area, or zone where structures and other human development meet or intermingle with undeveloped wildland or vegetative fuels), many locations in Arizona are susceptible to wildfire. Summer monsoon storms also cause damage to homes through high winds and hail. 
• Increases in home values. When home values increase, more insurance coverage is required to fully insure the home. Higher coverage amounts equal higher insurance premiums.
• Increases in construction costs. Construction costs, including labor and building materials, have surged since 2020. Considering these increasing costs, it will be more expensive to rebuild or repair your home if it were damaged or destroyed. When an insurance company pays out more in homeowners insurance claims, they will increase their premiums to cover the losses.

What You Can Do to Reduce the Cost of Your Homeowners Insurance

Although there are some factors affecting the cost of homeowners insurance that are outside of your control, your individual efforts and choices can have a major impact on keeping your costs as low as possible. If you live in a high wildfire risk area, you may find yourself in a situation where some insurance companies are not willing to write coverage for your home.  Fortunately, mitigation tools offer you the opportunity to take action to reduce your home’s risk to wildfire. 

• Mitigation is the key. Some insurance companies may be more willing to insure your home if you have taken efforts to reduce your home’s risk to wildfire.  Reducing the known risk factors of weather-related events, fire or flooding through mitigation efforts is the best way to control increasing insurance premiums in our state. While there are many different ways to mitigate risk, DIFI’s focus will be on mitigation efforts at the community and personal levels. 
• Community mitigation tools. There are many community mitigation tools available to your community, with most focusing on educational resources to understand wildfire risks. DIFI is encouraging consumers to become involved in community mitigation organizations such as Firewise USA®,  Federal Emergency Management Agency (FEMA) programs, the Federal Alliance for Safe Homes (FLASH), or you can contact your local Fire Department/District to find out about community mitigation efforts in your area.
• Personal mitigation efforts. There are opportunities for individual homeowners to undertake personal mitigation actions, such as keeping your yard clean of flammable debris, understanding how landscaping choices may affect the way fire or embers interact with your home, creating a defensible space around your home and outbuildings, and using fire resistant building materials. There are even smartphone apps that help educate homeowners regarding defensible space options. The National Association of Insurance Commissioners (NAIC) provides some steps you can take to protect your home from wildfires. 

You Can Make a Difference

DIFI works diligently to provide all Arizona insurance consumers the resources and knowledge to assist in doing their part to control increasing insurance costs. We encourage you to view the resources and information within the menu to the left regarding risk mitigation efforts in Arizona and how they relate to you.   

DIFI’s Strategy to Address the Cost of Homeowners Insurance

In furtherance of our mission, DIFI is focusing on: 

• Helping consumers manage the severity of risks through public outreach and education. DIFI is committed to helping bridge the gap between insurers and consumers. We believe well-informed consumers can make better decisions regarding their coverage choices within homeowners' policies. Given that the mitigation of risk is so important in the final cost of insurance, DIFI is prioritizing sharing information on mitigation strategies and programs that may save consumers money.
• Encouraging the adoption of mitigation strategies to make communities more resilient to wildfires. DIFI is focusing on reducing risk because it offers a better chance of long-term sustainability of insurance markets in disaster-prone areas. Current mitigation initiatives and programs include addressing fire spread, accessibility, defensible space, water supply, etc. for buildings constructed near wildland-urban interface areas that are susceptible to wildfire.
• Working with insurers to recognize mitigation programs. When communities work together to implement risk mitigation strategies, those efforts may be recognized by insurers as part of the overall strategy to prevent the loss of individual homes in those communities. DIFI is committed to working with insurers to recognize these programs in ways that result in cost-savings to policyholders within those communities.
• Providing resources for homeowners to find coverage. DIFI maintains a list of insurers who have indicated a willingness to provide coverage in areas of the state at higher risk for wildfire. Not all insurers listed will provide coverage in all areas and some may not offer competitive prices, but DIFI will maintain this list of insurers to give consumers and agents leads on finding homeowners coverage. Additionally, those insurers who recognize mitigation efforts will be noted. 
• Encouraging direct consumer-insurer engagement. As changes occur in people’s lives, their insurance needs change as well. Annual insurance reviews, or “check-ups,” are a great way to communicate with your agent or insurance company to ensure existing coverages, deductibles, and limits remain the most appropriate for your specific needs. Learn more about questions to ask your homeowners insurance agent or company. 

If you have concerns regarding your policy and need help or would like to file a complaint, contact our Consumer Services Division at (602) 364-2499 or [email protected] to learn how we can further assist you.  

Learn more:

Frequently Asked Questions Data and Charts List of Insurance Providers in AZ

Grants for Wildfire Mitigation Resources