Once confined to troubled insurance markets in California, Florida, and Louisiana, homeowners nationwide are watching home insurance bills soar.
Losses from storms, wildfires, and other natural disasters are breaking records, hammering insurer profits. The effect: unpalatable premium hikes and coverage cancellations are spreading.
“We’re just putting more things to break where the weather is,” Neil Alldredge, chief executive of the National Association of Mutual Insurance Companies, told the Wall Street Journal.
Why it matters: Insurers and analysts say home insurance will never be the same. Rising home insurance bills will persist.
Homeowners will continue to face the risk of nonrenewals, reduced coverage, and more restrictive policy conditions. Those policy conditions could be expensive fixes the homeowner takes on, such as cutting down trees or replacing a roof.
By the numbers: Reinsurer Swiss Re reports insured storm losses have grown 8% yearly for over a decade. That’s faster than economic growth.
Climate issues accounted for around an eighth of that increase. Economic inflation made up more than a third of the rise, the reinsurer says. Meanwhile, development in weather-prone areas accounted for much of the rest.
- Hail damage, in particular, is costing insurers. It drives 50% to 80% of insured losses from thunderstorms.
“I don’t expect the property market to soften any time soon,” Mario Greco, chief executive of Zurich Insurance, told the WSJ. “Nobody is ready to bet on a different weather pattern.”
Spreading the Costs
Insurers are penalizing disaster-prone areas, but also tapping distant customers to account for the changes.
A Harvard Business School study found that expensive natural disasters in one part of the country do affect insurance rates in others.
- The study found that between 2009 and 2019, natural disasters led to annual premium hikes in the following two years that were, on average, 3% to 6.5% higher in states with looser regulations than in states with tighter regulations with similar levels of risk.
“It’s spread all over the country, and it spreads in a disproportionate way, where some people are bearing an overwhelmingly higher cost,” Ishita Sen, a study co-author and a Harvard finance professor, told the WSJ.
What we’re watching: A U.S. Senate Budget Committee report found California had the nation’s fourth-highest insurance nonrenewal rate in 2023.
The insured losses from the recent Los Angeles fires are almost certain to mean more nonrenewals and higher premiums for all California property owners.
Photo: The remnants of homes that were destroyed by the Palisades fire on the west side of Los Angeles. The estimated insured losses from the blaze range between $28 billion to $35 billion (Shutterstock).