Home insurance costs across the United States are increasing, driven by a combination of more frequent and severe weather-related events, population migration to vulnerable areas, and inflationary pressures on rebuilding costs. This trend has led to insurers withdrawing from certain regions, higher premiums, and in some cases, challenges for policyholders in receiving timely claim payouts.
Rising Premiums and Contributing Factors
National home insurance costs rose approximately 8% faster than overall inflation between 2018 and 2022, according to a Treasury Department report. Factors contributing to these increases include:
- An increase in the frequency and severity of weather-related extreme events.
- Continued population migration to coastal and forested areas, which are vulnerable to hurricanes and wildfires, respectively.
- Inflationary pressures on building materials and labor, which raise repair and rebuilding costs.
Home insurance is typically a requirement for mortgage holders, and landlords may incorporate increased insurance expenses into rental rates.
Regional Impacts and Specific Events
- Coastal and Wildfire-Prone Areas:
- Florida's nonrenewal rate for policies increased by 280% between 2018 and 2023. Floridians pay an average of nearly $5,800 annually for home insurance, ranking it as the third-highest national rate.
- California has seen some major insurers withdraw following wildfire damages. The Eaton and Palisades fires were estimated to have caused $40 billion in insured losses.
- Central U.S. and Hailstorms:
- The central U.S., particularly the Great Plains, has emerged as a high-cost area due to a rise in hailstorms.
- Property insurance prices in the Great Plains were substantially higher than the national average between 2018 and 2022, with consumers in the Northern Plains paying about 20% more and those in the Southern Plains over 45% more.
- Nebraska's average homeowners insurance cost is nearly $6,400, the highest in the country.
- On June 29, 2024, a storm with hurricane-force winds and large hail caused an estimated $100 million in damage in Cozad, Nebraska. The Cozad Community Hospital sustained structural damage, leading to a temporary emergency department closure and subsequent policy non-renewal, prompting the hospital to upgrade to storm-resistant materials for its roof.
- The Insurance Information Institute reported an estimated $160 billion in damage to homes nationwide from hailstorms in 2024, excluding storms with hail under two inches in diameter.
Financial Consequences for Homeowners and Markets
Rising insurance expenses contribute to higher overall homeownership costs, which may influence property values and reduce the pool of prospective buyers.
- Research from Florida State University suggests that a 10% increase in homeowners insurance costs can lead to a 4.6% reduction in housing prices.
- In Lee County, Florida, home values in September were over 10% lower than the previous year and nearly 16% lower than in August 2022, following Hurricane Ian.
- Analysts predict that home values in approximately one in five U.S. communities may need to decline by around 30% to adjust for increasing insurance expenses.
- Homeowners in areas like Nebraska have reported average annual premiums for a $300,000 home increasing from approximately $1,500 to between $3,000 and $4,500 within a few years.
- Some homeowners have chosen to sell rental properties due to the impact of available insurance policies on potential rental rates.
- Senior citizens, often relying on fixed incomes, have been affected by these cost increases.
- Many insurance policies now feature higher deductibles and may offer less comprehensive coverage for roof replacement. Some homeowners are opting for higher deductibles to lower monthly payments.
Challenges with Insurance Claims
In California, wildfire victims have reported delays and difficulties in receiving insurance payouts.
- One State Farm customer, whose home was destroyed in a southern California wildfire, waited nine months for his claim. His payment arrived in November after Los Angeles County announced an investigation into State Farm's handling of claims from January wildfires.
- The Executive Director of the Eaton Fire Survivors Network noted that many State Farm customers in the Los Angeles area began receiving checks around the time of the investigation announcement.
- The Los Angeles County Counsel initiated an investigation into State Farm in November, following reports of delayed, underpaid, and denied claims. State Farm described the investigation as a distraction.
- Homeowners whose properties sustained smoke damage and contamination, such as lead, have faced challenges in receiving coverage. Some residents reported moving multiple times and incurring debt while awaiting resolutions.
- As of recent reports, 65% of Altadena residents and nearly 75% of Pacific Palisades residents affected by the fires remain in temporary housing.
- State Farm reportedly faces similar allegations in Oklahoma regarding minimized payments for roof damage, and in Texas and Florida concerning rising premiums and claim denials.
- A U.S. Representative stated that a core tenet of the insurance industry is to pay as little, as late, as possible. The CEO of the American Property Casualty Insurance Association acknowledged frustration with the pace of rebuilding while noting that insurers have paid tens of billions to policyholders. An executive director of a policyholder organization commented that insurers employ strategies to mitigate their financial impact.
Industry Performance and Mitigation Efforts
The insurance industry experienced $26 billion in profits in 2024, following a loss of over $10 billion in 2023, according to credit agency AM Best. Industry representatives state that price adjustments reflect the substantial costs associated with rebuilding after major disasters.
Efforts to reduce disaster costs involve homeowners and communities investing in protective measures, such as fortified roofs and flood panels. In Lake County, California, repeated wildfires have prompted initiatives like retrofitting homes and creating fuel breaks.
Community-wide risk reduction efforts are not consistently reflected in insurance companies' risk assessments or premium calculations. A new database, the WUI Data Commons, is being developed to aggregate information on community and landscape wildfire projects, aiming to provide insurers with consistent data. Experts emphasize the importance of the insurance industry incentivizing preparedness through more favorable rates to build market trust and create financial incentives for risk reduction.