Home insurance costs across the United States are increasing, and insurers are withdrawing from certain regions due to escalating disaster-related expenses. This trend is impacting the affordability of property protection for many Americans.
Rising Costs and Contributing Factors
Between 2018 and 2022, home insurance costs nationally rose approximately 8% faster than overall inflation, according to a Treasury Department report from January. Factors contributing to this increase include:
- An increase in the frequency and severity of weather-related extreme events, driven by climate change.
- Continued population migration to coastal and forested areas, which are vulnerable to hurricanes and wildfires, respectively, placing more property at risk.
- Inflationary pressures, particularly on building materials, which raise the cost of repairs and rebuilding.
As losses from disasters grow, insurance companies are transferring these costs to consumers through higher premiums. Home insurance is typically a requirement for mortgage holders, and landlords may incorporate increased insurance expenses into rental rates.
Regional Impacts Across the U.S.
Historically, coastal states like Florida have experienced expensive insurance markets. Florida's nonrenewal rate for policies increased by 280% between 2018 and 2023. California has also seen major insurers withdraw following significant wildfire damages.
More recently, the central U.S. has emerged as a high-cost area. The Treasury report indicated that the average price of property insurance in the Great Plains was significantly above the national average in some areas. This is partly attributed to a rise in hailstorms. For example, a hailstorm in Cozad, Nebraska, caused an estimated $100 million in damage. Nebraska's average homeowners insurance cost is nearly $6,400, the highest in the country.
Financial Consequences for Homeowners and Markets
In regions such as southwest Florida, rising home and flood insurance costs are leading to financial strain. Floridians pay an average of nearly $5,800 annually for home insurance, the third-highest national rate. Increased insurance expenses contribute to higher overall homeownership costs, potentially reducing the pool of prospective buyers and influencing property values. Research from Florida State University suggests a 10% rise in homeowners insurance costs can lead to a 4.6% reduction in housing prices.
For instance, 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 in approximately one in five U.S. communities, home values may need to decline by around 30% to adjust for increasing insurance expenses. Such declines could increase mortgage defaults, impacting the broader U.S. housing market.
Mitigation Efforts and Future Outlook
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 in neighborhoods to improve wildfire resistance and creating fuel breaks.
However, these 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, trusted 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.