Homeowners In These States Struggle As Insurance Premiums Soar to Record Highs Amid Climate Crisis
The average home insurance premiums are set to reach a record high in the US this year. According to data from Insurify, an insurance comparison platform, the average premiums are set to hit $2,522 by the end of the year, driven majorly by climate change which has intensified natural disasters, causing insurers to hike premiums or pull back entirely. This has also spiked reinsurance and home repair costs. The increase is expected to be about 6% on average and it follows a rough increase of 20% over the past two years.
The painful rise in home insurance costs https://t.co/QZ6mMZ56WF | opinion
— Financial Times (@FT) April 1, 2024
Due to the soaring costs, home insurance has become increasingly unaffordable for many Americans with several opting to forego coverage entirely as a result. As per Insurify’s report, some states which are prone to natural disasters are much worse off than others.
States Expected to See the Highest Spike in Insurance Rates
The states that are vulnerable to extreme weather events are likely to see the highest rate hikes. States like Florida, Louisiana, Texas, Arkansas, and Mississippi which are vulnerable to hurricanes are likely to see an increase of up to $12,000.
Meanwhile, states like Texas, Colorado, Nebraska, and Kansas which face a growing wildfire and tornado risk are also projected to see a major increase.
As per Insurify, Florida homeowners who already pay the most for home insurance, are likely to see an average increase of 7% raising rates from $10,996 in 2023 to $11,759 in 2024.
Rising home insurance costs are adding pressure for buyers: Insurify: Florida tops the list for the highest average annual home insurance cost at $9,213 https://t.co/ISUAFI91Mo
— HousingWire (@HousingWire) March 14, 2024
The state of Louisiana pays the second-highest home insurance rate, at $6,354 annually and it is projected to witness the greatest increase in 2024, with a projected 23% hike, increasing the average rate to $7,809. The state already has rates nearly three times the national average.
Insurers are Cutting Back
As climate change increases the frequency and severity of extreme weather, insurers in the most impacted areas are taking measures to cut costs. Apart from raising premiums, some insurers are pulling out altogether, further impacting the affordability and availability of home and fire insurance.
Last year, the nation’s largest homeowner’s insurance company, State Farm, stopped taking new applications for insurance policies on property in California due to the increased risk of wildfires. Another firm, Allstate had done the same in 2022 to “protect current customers” the Associated Press reported.
This trend is likely to continue across the insurance industry, said Jeremy Porter, head of climate implications research at First Street Foundation, told CNBC.
State Farm to pull out of 72,000 California insurance policies.https://t.co/FSRzWgSeWw
— Reinsurance News (@NewsReinsurance) March 22, 2024
Over a dozen home insurance companies have declared insolvency since 2019 and even farmers insurance stopped covering the state of Florida after widespread natural disasters. Other major insurers in the state have not renewed policies for high-risk homes. The situation was exacerbated by Hurricane Ian which caused damages worth $112.9 billion out of which $109.5 billion was from Florida.
Implications of High Insurance Rates
As insurers pull out of a market, it reduces competition allowing the remaining players to continue raising prices. Homeowners who are unable to afford the skyrocketing rates are foregoing insurance. This has several implications beyond the insurance market.
These are mainly the homeowners who don’t carry a mortgage. However, this leaves them unprotected if a disaster hits. Such homeowners are also likely to face a shortage of buyers as people refrain from buying uninsured properties or homes in areas where insurance rates are sky-high.