Home Insurance Crisis Spreads to Unexpected Areas

Climate change-induced policy costs and cuts impact homeowners even in States rarely associated with risk.

Intense and damaging Hurricanes Helene and Milton left devastating loss of life and epic damage to homes, businesses and forests in their wake. They also highlighted once again the simmering – and now boiling - crisis in homeowner’s insurance. Spikes in homeowner’s insurance premiums and increasing numbers of homeowners losing their home insurance are not just a story in the usual places that are susceptible to intense storms and wildfires such as Florida, Texas and California.

One-fifth of homeowners reported that they received a notice from their insurer threatening to drop their policy, according to a U.S. News survey in August. That same survey found that 61% of homeowners worry about climate change and the impact of natural disasters on their home, and 82% want the government to cap homeowners' insurance premiums. More than one-third (35%) have considered moving to a state with a lower natural disaster risk.

But before you pack up and move, consider this: researchers at Insurify, an online insurance comparison platform, found that at least 15 states face an imminent homeowner’s insurance crisis. Among those 15 states are places like Michigan, Illinois and Iowa, which may not be the first to come to mind when thinking of natural disasters.

Some of the issues in those states that contribute to the insurance crisis include extreme winter precipitation and flooding because of a decrease in ice formation on the Great Lakes; freezing temperatures, tornados and hail storms in Illinois, and damaging hail storms and derechos in Iowa.

“The reason that many states are facing an insurance crisis is primarily related to increased threats due to climate change,” says Betsy Stella, vice president of carrier management for Insurify. “Wind, water and wildfire events are occurring more frequently. They're more severe, and they're happening in places that they haven't historically. Insurers must price for this change in risk.”

Running for Higher Ground?

The Insurify study found that multiple insurance companies have left states entirely such as Florida, California and Louisiana or non-renewed policies for many homeowners there. Insurance premiums have increased so much that state-run insurers of last resort, which are meant to be a stopgap for people who can’t find affordable insurance through a private company, now cover more homeowners than they can handle.

In addition to the catastrophic costs of natural disasters – damages from Hurricane Helene were estimated to cause more than $5 billion in insured losses – rising real estate values and construction costs contribute to higher premiums.

“Economic factors have a significant impact on home insurance premiums,” says Andrew N. Mais, president of the National Association of Insurance Commissioners (NAIC) and Connecticut Insurance Commissioner. “Inflation increases the amount of insurance premiums over time. Interest rates and inflation influence both real estate values and the price of durable consumer goods insured as contents.”

Construction costs to rebuild or repair vary based on the type of residence, availability of building materials and factors such as local climate and building regulations, he says.

“Higher expected repair costs for value-added designs to reduce damages to the structure from earthquakes, tornadoes or hurricanes will also impact the price of insurance,” Mais says.

Evaluating your Insurance Risk

If you live in one of the 15 states listed below, you should anticipate higher insurance rates and less competition among insurance companies, based on Insurify’s analysis of weather risks, historical premiums, rate filings, local legislation, state building codes, and reports of dropped policies and insurer exoduses. Rates are expected to rise between 4% and 14% in 2024 compared to 2023 in these states.

• Alabama
• Arizona
• Arkansas
• Colorado
• Hawaii
• Illinois
• Iowa
• Michigan
• Minnesota
• Mississippi
• Missouri
• North Carolina
• Oklahoma
• South Carolina
• Texas

Each state has its own regulatory evaluation of an insurer’s homeowner’s insurance rates, Mais says. To find out about insurance premium trends in your state, Mais recommends visiting the website of your state Department of Insurance, which can be found through the National Association of Insurance Commissioners’ website.

“Homeowners can talk to their agent, who will know whether there are planned rate hikes in their area,” Stella says. “Proactively learning about a carrier's intent to do business in a particular area is a bit more difficult, as insurers may not make that information public until they've made their final decision.”

Shopping Around

It bears emphasizing that homeowners should ask for rates from multiple insurers to find the most affordable coverage, Mais says.

“Even if you’ve been with one company for a long time, it’s good practice to get quotes from several companies before you buy, especially as your needs change,” he says. “Make sure you understand what coverages are included and that you’re comparing equivalent policies. The better your coverage, the less you will have to pay out of your own pocket if disaster strikes.”

Most lenders require you to buy a policy that covers at least the amount of the mortgage. The amount of coverage you purchase affects how much you’ll pay.

When you’re shopping for homeowner’s insurance, be sure you know whether the policy you’re buying is for “replacement cost value,” which is the amount it would take to rebuild or repair damages with materials of similar kind and quality without deducting for appreciation, Mais says. Insurance companies also offer “actual cash value” policies that cover rebuilding or repairs minus depreciation.

“Policies that pay claims based on replacement cost value give you more protection than policies that pay based on actual cash value, but the premiums will also likely be more,” he says. “Most companies also offer ‘guaranteed replacement cost coverage’ for an additional premium.”

For most homeowners, the most important coverage that is usually offered is full replacement cost coverage on your roof with no deduction for depreciation, Mais says.

When you’re comparing policies and premiums, you may want to consider additional coverage for situations your regular insurance doesn’t cover, such as damage due to a sewer or drain backup and sump-pump overflow.

As far too many homeowners found out after Hurricanes Helene and Milton, flood damage is not covered by a typical homeowner’s insurance policy. Earthquake damage is also excluded, Mais says. He recommends talking to an insurance agent about purchasing flood and earthquake coverage.

Upgrades for Key Discounts

Multiple factors influence homeowner’s insurance premiums, many of them based on the details of your structure and your deductibles. Some strategies to lower your home insurance premiums include:

• Consider a higher deductible. A higher deductible will lower your premiums since you’re taking on some of the risk yourself, Stella says. Make sure you can afford to pay the deductible if you have a claim.
• Bundle your home and auto insurance. Most insurers offer a discount for this, Stella says.
• Update your roof. Roof claims are one of the most often filed, making them a primary consideration in rating a risk, Stella says. If it's time, or almost time, for a roof update, proactively doing the work can help save on insurance costs.
• Fix your wind mitigation. Some policies in florida offer as much as a $2600 discount if your home is properly tied down at the rafters. If you lack these, pay a company to add them. You’ll pay for the upgrade in 6 months in your insurance discount.
• Install security systems and smart home technology. Some carriers offer discounts for these home features, Stella says.
• Remove tree limbs and trim back vegetation around your house. Let your insurance company know about steps you take to protect your property, and you may get a discount, Mais says.

Mais recommends an annual insurance review.

“The addition of a room, new insulation or remodeling add value to your home and may increase replacement cost,” Mais says. “Ask questions about what your policy covers and what deductibles you might have to pay. Ask if your deductible is a fixed dollar amount or if it is a percentage of your home’s insured value. Find out if your coverage is for cash value or replacement cost. You don’t want to be surprised if you need to file a claim and find out you don’t have all of the coverage you need.”

Publisher’s Note: This content is made possible by our Today’s Homeowner Campaign Sponsors: Whirlpool Corporation. Whirlpool Corporation takes sustainability seriously, in both their products and their operations. Learn more about building and buying homes that are more affordable and less resource intensive.