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Homeowners are Having to Pay Higher Insurance Premiums; Here's Why Climate Change is to be Blamed

The frequency and severity of natural disasters have increased, leading insurers to reassess their risks and limit their exposure.
Cover Image Source: Pexels | Andrea Piacquadio
Cover Image Source: Pexels | Andrea Piacquadio

Homeowner's insurance provides essential protection from damages to property and losses, but increasing costs and limited availability in many areas are affecting access to the service. Factors contributing to these challenges, include climate change, rising rebuilding costs, and higher premiums from reinsurance companies. 

The impact of climate change

As a consequence of climate change, the frequency and severity of natural disasters has increased, making insurers reassess risks and limit their exposure, as mentioned by CNN Business. Florida, for example, has experienced devastating hurricanes, such as Hurricane Ian, virtually driving insurance firms away from state's market. This is forcing homeowners in Florida to pay premiums nearly four times higher than people in other parts of the country.

Wildfires in California have also forced major insurers like State Farm and Allstate to halt new homeowners policies in the state due to the increased risk. That's how costs for insurers and homeowners alike have gone up due to climate change.


Rising rebuilding costs and premiums

Apart from climate change, the cost of rebuilding or repairing damaged properties has gone up due to inflation that makes building supplies and labor more expensive. Moreover, reinsurance premiums meant to limit risks for insurers, have risen by 30% to 40% due to years of losses in the industry.

Image Source: Pexels/Andrea Piacquadio
Image Source: Pexels/Andrea Piacquadio

While premiums across the US saw a modest 1.6% hike in a year due to higher costs for insurers, areas where insurance is becoming harder to find, have experienced a double-digit rate increase.

The growing issue of uninsurable places

The number of uninsurable places is increasing across the US but states like California, Florida, and Louisiana are particularly affected due to the risk of hurricanes and wildfires. Homeowners in these states are turning to state-supported insurers as a last resort, even though they offer narrow coverage at higher costs.

A report stated that around 17% of homeowners' insurance policies were canceled last year in Louisiana, and more than two-thirds of policyholders paid higher insurance costs compared to other states. Smaller insurers in states like Louisiana and Florida have even gone bankrupt, leaving homeowners without any options. Florida's Citizens Property Insurance, the last resort for homeowners in the state, has seen a 50% increase in policies in just one year, accounting for 16% of the market.


The future of homeowners' insurance

The challenges faced by homeowners insurance are not limited to specific states and could spread to other regions. States that impose limits on premium increases might force major insurers to pull out from high-risk markets. As insurers aim to find profitable opportunities, they will focus on regions where they can achieve a return on their capital.

Risks associated with wildfires are only expected to rise due to soaring temperatures as climate change gets worse. The United Nations Environment Programme projects an increase of up to 14% in worldwide wildfire events by 2030 and a 30% surge by 2050. This prediction indicates that the challenges of homeowners insurance will persist and potentially worsen in the coming years.