Huge Increases in Home Insurance Suggest a Shift in Natural Risks

As home insurance goes through the roof, the untold story is that the biggest claims are going to fire and lightning damage.

Chances are high that you’ve lived through a hurricane, a flood, or an extended stretch of extreme heat in the past few years–and homeowners insurance companies are making you pay for it. 

But the numbers insurers are looking at may not be the first ones you think of.

The average flood insurance claim payout from the National Flood Insurance Program was $66,000 from 2016 to 2022, according to Policygenius, an online insurance marketplace, however: 

“Although they happen far less frequently compared to flooding, the average fire and lightning-related claim payout was $83,519 from 2017 to 2021, according to the Insurance Information Institute,” says Pat Howard, a licensed property and casualty expert with  Policygenius. “By comparison, the average wind and hail payout — which includes tornadoes and hurricanes in addition to more common convective storms — was $12,514.”

Between 2019 and 2022, the number of severe climate-related disasters in the U.S. increased by 32% and insured losses rose by 300%, according to a recent report by Deloitte. Those increased costs led to a 35% increase in homeowners insurance premiums between May 2021 and May 2023, according to the 2023 Home Insurance Pricing Report from Policygenius.

Home insurance exists to reimburse you if your house is damaged or destroyed. Your insurance company’s premiums are meant to counterbalance the risk of a loss, says Howard. Geography plays an important role in homeowner insurance costs, particularly in areas more prone to natural disasters such as Tornado Alley (which encompasses northern Texas, Oklahoma, Kansas and Missouri, along with parts of Louisiana, Iowa, Nebraska and eastern Colorado) or the Atlantic and Gulf coasts, which experience more hurricanes. 

While 94% of homeowners faced a higher insurance premium when their policy renewed in 2023, according to Poicygenius, the average jump in premium was significantly higher in states prone to natural disasters. The average premium rose 68% in Florida, 47% in New Mexico, and 46% in Colorado, Idaho, and Texas over the course of two years. 

“Your premium is largely determined by the location of your home and the probability of it being badly damaged or destroyed, in addition to the cost of replacing it,” Howard says. 

Source: COGNITION Smart Data

Climate Change and Premium Pricing

While all natural disasters have the potential to cause significant damage to homes and communities, wildfires and flooding are often the costliest issues for homeowners, Howard says. 

“Hurricanes and tornadoes can wipe out entire neighborhoods, but events like this are generally limited to certain areas or the most extreme cases,” Howard says. “Flooding and wildfires can happen pretty much anywhere, and instances of severe home damage are more widespread geographically compared to tornadoes and hurricanes.”

In 19 states and Washington, D.C., additional hurricane deductibles are required, which means that homeowners will bear higher costs if a hurricane hits. In 2024, approximately 18% of homes in the U.S. face severe or extreme risk of wind damage due to a hurricane, according to research by Realtor.com. 

Approximately 6.6% of homes in the U.S. face severe or extreme risk of flood damage, according to Realtor.com’s research. Premiums for flood insurance, which is mainly provided by the National Flood Insurance Program (NFIP), are anticipated to increase by an average of 103% within four to five years, according to the research.

Gaps in Insurance Coverage

While higher homeowner insurance premiums are an issue, many homeowners worry even more about canceled insurance coverage. Numerous companies have opted out of providing homeowners insurance in California because of the high risk of wildfires and from Florida because of flood and storm risks. 

Nationwide, about 8.3% of respondents to a survey by Redfin said their insurance company stopped offering coverage for their home. That number is significantly higher among Florida residents (12%) and California homeowners (10.7%). Residents in those two states expressed much more concern that they are likely to be dropped by their homeowner's insurance company. 

In Deloitte’s survey, 23% of respondents said they are dealing with shrinking insurance options. More than half (53%) said their existing insurance options are too expensive. The options that some homeowners are left with are to shop for a more affordable policy – which is particularly difficult in states where fewer companies even offer policies - or to reduce their coverage or go without it. Lenders require homeowners to have insurance, but owners without a mortgage may choose to opt out of coverage.

Many homeowners in the Deloitte survey expressed concern that their insurance doesn’t cover damage from floods, earthquakes, major storms or wildfires. Even if additional coverage is available for those natural disasters, the premiums add to the lack of affordability for homeowners. The burden of limited insurance protection is particularly heavy on homeowners with incomes under $99,000.

Although state-sponsored insurance coverage may be available, 86% of respondents said they aren’t taking advantage of it, often because of lack of information or concern that the coverage was too minimal. 

Stepping Up After a Disaster: FEMA Reforms

Increases in the number of climate-related disasters and their severity led FEMA (Federal Emergency Management Agency) to make policy changes to streamline the process of providing aid, particularly for people who are underinsured. 

New policies that went into effect in March 2024 include:

• Serious Needs Assistance. A payment of $750 per household will be available in all disasters to help cover immediate expenses related to sheltering, evacuation and meeting basic household needs. This payment would be in addition to other eligible assistance that may be provided to survivors based on their unique circumstances.

• Displacement Assistance. This assistance is designed for survivors who cannot return to their home following a disaster and provides them with greater flexibility in making the best decision for their immediate housing needs.

• Simplified Aid. Survivors no longer need to apply for a Small Business Administration (SBA) loan before being considered for certain types of financial assistance. Previously, FEMA required survivors apply for these loans before receiving assistance for personal property and other non-housing losses.

• Helping Underinsured Survivors: FEMA is streamlining insurance-related rules to help survivors who do not receive enough assistance Under this amended approach, financial assistance is now available up to the $42,500 cap mandated by Congress to cover costs not reimbursed by insurance including deductibles and underinsured losses.

Resilient Homes and Insurance Discounts

Insurance companies are beginning to acknowledge the steps homeowners take to protect their homes from climate change-related damage.

“While it’s often not apparent these days due to home insurance rates being higher than ever before, most insurers know that simply raising premiums isn’t a sustainable business practice,” Howard says. “To that end, many insurance companies offer home fortification or protective devices discounts to homeowners that take steps to make their home more resilient to natural disasters and lower their chances of having to file a claim.”

Ask your insurance representative if they have advice specific to your area or your home about what you can do to increase the resilience of your home. Steps homeowners can take to reduce homeowner insurance premiums include:

• Shop around. Insurance companies evaluate risk in different ways, so you could save substantially if you compare rates.
• Raise your deductible. If you can afford it, raise your deductible from $500 to $1,000. Even better, if your deductible is $1,000, raise it to $2,500 and save an average of 13% on your premiums, according to NerdWallet.
• Purchase storm shutters. Insurance companies often offer discounts for homeowners who protect their property with shutters.
• Install leak detectors. Catching a drip or major leak early saves you and your insurance company money.
• Upgrade your roof. Reinforce your roof with hurricane clips or tie downs, nail down loose shingles and check your flashing. 
• Install alarms. Make sure you have a working smoke detector and burglar alarm to get a discount on your insurance premiums.

Two-thirds of homeowners in a survey by Fannie Mae reported taking steps to minimize the risk of future damage to their home. One-third took steps to prevent wind damage; one-quarter (27%) acted to prevent water damage from sewer and drain backups; and another 24% have taken steps to address flooding.

Some insurance companies provide homeowners with an in-home consultation on how to make their property safer and lower their premiums and partner with tech companies to offer rebates to new policyholders for features such as water leak detectors and other smart home devices, Howard says.

“Taking steps to strengthen the structure of your home—such as installing wind or fire-resistant windows, doors, or roofing or creating a defensible space around your property—is a great way to mitigate the risk of natural disasters while lowering your home insurance premium in the process,” Howard says.

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.