Real Estate

Home Insurance Premiums Set to Set Records This Year—When Will Prices Fall?

Insurance premiums are skyrocketing across the United States, with no end to annual increases that may make you reconsider investing in real estate in many parts of the country. At the very least, anyone investing in 2024 should be aware of the states where insurance premiums are rising the fastest — and factor those changes into their costs.

According to a recent Reports According to insurance comparison platform Insurify, home insurance premiums will increase by 6% in 2024 after already increasing by 20% over the past two years. And that’s just the average. Many states will see double-digit premium increases this year thanks to a perfect storm of factors (excuses), especially extreme weather events and higher home repair costs.

Let’s dive deeper into these factors—and which states are most affected.

Impact of extreme weather events

It is clear that the sheer volume of extreme weather events affecting the United States is increasing at an alarming rate. In the 1980s, Three hurricanes hit the US causing $1 billion in damage. in loss every year. Fast forward to the 2010s, and that number was 13 a year. In 2023, the United States experienced 28 such weather events in one year.

Of course, no one is surprised by hurricanes in Florida—but home insurers are becoming increasingly wary of operating in the state because of the frequency and severity of such events. Home insurance premiums in the Sunshine State are already among the highest in the nation, with an average of $10,996 in 2023, according to Insurify data. And they’re set to rise 7% again this year, bringing the cost of insuring a typical Florida home to $11,759.

Other hurricane-prone states are also seeing steep premium increases. Louisiana insurance premiums are increasing by 23 percent, bringing the average cost of home insurance in the state to $7,809. South Carolina and North Carolina are also expected to see significant increases of 11% and 10%, respectively.

These increases, while very troubling for homeowners in these areas, are somewhat predictable, at least from a geographic perspective. What will come as a (nasty) surprise to some investors is the expected double-digit increases in states not traditionally associated with extreme weather.

The risk of coastal storm damage is now affecting insurance premiums in Maine, which was traditionally viewed as low risk. Maine Climate Council 1.5 feet relative sea level rise (SLR) By 2050. Connecticut is another state that traditionally wasn’t seen as high risk but now is identity Due to vulnerability to hurricanes, coastal storms and sea level rise.

Even more unexpectedly, the Midwest is being hit by rapidly rising home insurance premiums. Michigan and Illinois will see premium increases of 14% and 10%, respectively. Why? Wind and hail.

July 2023 was a particularly devastating month for the Midwest, with two billion-dollar storms pummeling states from Nebraska to Michigan within a week of each other. Ping-pong to golf ball sized hail and strong winds damaged many homes, vehicles, businesses and other infrastructure. National Oceanic and Atmospheric Administration (NOAA).

Home insurance usually covers damage from wind and hail. It’s no wonder insurers are raising premiums in states experiencing property damage from golf ball-sized hail.

These extreme weather events may not be as dramatic as hurricanes, and as Tim Zwacki, principal research analyst for insurance at S&P Global Market Intelligence, told NPR, “A lot of these storms don’t make national headlines.” However, they have a “very local effect” and “the extent of where these storms are occurring is somewhat […] The industry is quite concerned about this.”

Beyond climate change: the ongoing building supply and labor cost crisis

Home insurance premium are directly affected by the cost of house construction. This is another factor that has been wreaking havoc on home insurance costs since the pandemic.

Unfortunately, 2020 saw the cost of nearly every building material skyrocket, from lumber to structural steel and fiberglass, to say nothing of labor shortages that continue to this day. Overall, construction costs are still rising, with a Recent report A nationwide growth of 3% to 6% is expected in 2024.

These cost increases contribute to rising insurance premiums — but that’s not the whole story. The higher cost of certain materials is redefining what insurers are willing to cover in the first place.

In high-risk areas, property owners are starting to see certain structural features or materials in their homes that are excluded from home insurance policies because of their claimed value. This is the case with aluminum and knob and tube wiring. Many insurers have begun excluding this type of wiring from their policies as a form. Risk mitigation.

Aluminum used to be four to five times cheaper than copper and, therefore, was a popular cost-cutting wiring material. It is also much less ductile and more fragile than copper. However, imagine what happens to aluminum wire in a storm.

The Future: Can the Home Insurance Crisis Be Solved?

Some insurers are reducing their losses and stopping coverage in high-risk areas. Florida has it worst: Farmers Insurance, Bankers Insurance, and Lexington Insurance all pulled out of the state last year.

It’s worth pointing out that Florida’s home insurance crisis is complex, perhaps more so than in other states. On the one hand, there’s the state’s problem with the lack of reinsurance: Reinsurance providers are also moving out of state, leaving home insurers with no recourse if they can’t cover their costs.

Then there is the issue of fraudulent claims. In fact, the problem is so widespread in the Sunshine State that it’s happening. dealt with at the state legislative level..

All these problems There are also in other states. They have only increased in high-risk areas where the cost is increasingly prohibitive for everyone. If this trend continues, “it’s possible that the highest-risk areas will become uninsurable,” according to Betsy Stella, vice president of carrier management and operations at Insurify. “However, where there is demand, a supplier will usually appear. The question is, at what price?”

The answer is that making home insurance affordable again may involve restructuring it. One solution to the current crisis may involve the creation of government insurance providers focused on specific natural disastersFlorida is already considering establishing a state insurance program for hurricane claims, following the FEMA flood insurance model.

More precisely, some Florida policymakers are. Suggestion For all Florida residents to change their government insurance provider, Citizens Property Insurance, to a hurricane-only provider. Currently, Citizens is an “last resort” insurer but is increasingly becoming the default provider for residents who cannot obtain other insurance. Citizens is not enthusiastic about the proposed changes, arguing that it will make it harder to get reinsurance.

The second set of proposals focuses on making it possible to insure only the remaining balance. mortgage rather than the replacement value of the home. This can make insurance more affordable but can put homeowners in a difficult position if the amount needed to make a claim exceeds the outstanding balance of their mortgage.

Final thoughts

Ultimately, it is difficult to predict whether 2024 will bring reforms to home insurance markets in high-risk areas. Changes in legislation happen gradually. We’ll just have to wait and see what solutions will be implemented — and when.

In the meantime, it may be wise to hold off on investing in an area with known home insurance issues.

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Note via BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.


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