Why are Arizona home insurance premiums rising so much faster than inflation?

PHOENIX — As many Arizona residents struggle with rising costs, homeowners in the state are seeing their insurance premiums far outpace inflation.

Arizona’s home insurance rates increased by 71% from 2020 to 2025, ranking sixth in the country, according to a new report by online loan marketplace LendingTree. Meanwhile, the inflation rate over that period was much lower at 26.4%.

In fact, the Grand Canyon State had the nation’s sixth-largest gap between premium hikes and inflation at 44.6 percentage points.

“Whenever you see something like that happen, it’s pretty disturbing,” Rob Bhatt, a LendingTree insurance analyst, told KTAR News 92.3 FM on Thursday.

Why have Arizona insurance premiums gone up so much?

Bhatt said the growing risk of wildfire damage is the main factor behind the rapid rise in Arizona’s home insurance premiums.

“More homes that are in these wildland-urban interface areas where people want to live,” he said. “They’re great, they’re in nature, but they’re also surrounded by wildfire risk.”

He added that even wildfires outside Arizona’s border have likely contributed to premium rate hikes. He explained that insurance companies, as well as “reinsurance” companies that provide financial protection for the insurance companies themselves, have become more cautious when assigning risk to regions that have a large number of fires.

Rising home values and increasingly expensive rebuilding materials are also playing a role, Bhatt said.

Are Arizona insurers taking advantage of homeowners?

Still, that doesn’t explain everything, especially when looking at insurance company margins.

Bhatt said Arizona insurers only paid out 55 cents for every dollar they earned to settle claims in 2024, while the industry average hovers around 66 cents.

“What I would suggest for consumers, and even regulators, is to keep an eye on that … and if the loss ratios are really low, maybe there’s a reason to look at, or at least question, the rates insurance companies are charging,” he said.

Bhatt noted that the margin discrepancy could be due to miscalculations of risk rather than trying to take advantage of ratepayers.

And there is reason to be hopeful that Arizona insurance premiums won’t stay on that five-year trajectory. Rates increased by only 3.6% in 2025, which ranked 33rd in the country.

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