And Taxpayers increasingly taking up the slack.
Many Americans should start planning now for the growing possibility that their home-insurance provider won’t renew their coverage.
Damage from extreme weather, rising lawsuits and soaring costs of rebuilding have led some major insurance companies to stop renewing existing policies orissuing new ones. Homeowners in Florida, Louisiana and California have been particularly hard hit, but more homes across the country are at risk of losing coverage, say insurance companies.
And the cost of coverage is rising fast as companies are paying out more in claims. The national average for home insurance based on $250,000 in dwelling coverage increased 20% this year to $1,428 annually from 2022, according to Bankrate.
–
“With catastrophe costs at historically high levels, reconstruction costs continuing to climb, and record-breaking inflation, loss costs in areas like the California home insurance marketplace continue to be challenging for insurers, requiring us to take actions to manage our risk exposure,” wrote Trevor Chapman, a spokesman for Farmers Insurance, in an email.
The insurance industry is increasingly wary of the risks presented by climate and natural disasters, prompting major firms to scale back their presence in more vulnerable states.
In June, Farmers Insurance announced in a company memo it will no longer write new property insurance policies in Florida, citing “catastrophe costs … at historically high levels.” Earlier in the month, AIG stopped issuing policies along the Sunshine State’s hurricane-vulnerable coastline.
Those followed State Farm, California’s largest homeowners’ insurer, which in May announced a moratorium on new policies in the state, blaming “rapidly growing catastrophe exposure.” The decision came after years of devastating wildfires have sent insurance rates in California skyrocketing.
Eric Andersen, CEO of consulting firm Aon PLC, said in testimony before the Senate Budget Committee in March that reinsurance companies — the firms that help insurers pay out costs — have also stepped back from high-risk areas, particularly those vulnerable to flooding and wildfires.
“Just as the U.S. economy was overexposed to mortgage risk in 2008, the economy today is overexposed to climate risk,” he said.
The industry is feeling the pinch beyond the East and West coasts, as well, according to Mark Friedlander, director of corporate communications at the Insurance Information Institute. He noted that dozens of firms have reduced their presence in Louisiana, including 50 that have stopped writing new policies in the state’s hurricane-prone parishes.
“This isn’t just a story about Florida and California — all over the country there are insurers who are less willing to take risks,” from those along major rivers to areas vulnerable to tornadoes, said Benjamin Keys, an assistant professor of real estate at the University of Pennsylvania’s Wharton School.
Louisiana, in particular, has gotten less attention than California and Florida, but the state’s insurance industry has been steamrolled by recent intense storm seasons.
“Many smaller, undercapitalized insurers in Louisiana were not able to handle the volume of losses from the 2020-2021 hurricane season,” Friedlander said.
The industry, which has historically taken a more reactive approach to disasters, is shifting its strategy as such events become harder to ignore, he added.
“The industry’s taking the approach now of what’s called predict and prevent, meaning being proactive to address climate risk and make sure insurance coverage reflects that and make sure homes and business take preventative action,” Friedlander told The Hill.
He noted that while Farmers made headlines, it’s the 15th insurer to stop writing new policies in Florida in the last 18 months. Although most of those companies have not pulled out of the state outright, he added, three have.
“Insurers are in many ways the first movers” in response to trends like extreme weather and natural disasters, Keys said. “They have a significant amount of money at stake, so they’re very exposed to the downside.”
Florida is in a unique position, Friedlander said, because of a combination of high fraud rates and widespread litigation, which both compound the cost of insurance on top of the climate risks. A state law enacted this year creates a backstop for property insurance in hopes of alleviating some costs, but it’s not yet clear how effectively it will counteract those factors, which have been building for years.
“The difference is in California and Louisiana, [insurance costs are] primarily climate-driven,” he said. “They don’t have the manmade factors we have here in Florida.”
Florida also has a longer history of insurers coming and going, Keys added, going back to Hurricane Andrew in 1992, the most destructive hurricane in terms of property damage in the state’s history.
“What that’s meant is that the insurer of last resort in the state, Citizens Insurance, has become the largest insurer in the state,” he said, on top of the federal flood insurance program.
There are Sandy flood survivors in New York who have filed multiple flood claims (repetitive damage) over the years who still are demanding broader coverage at lower rates. Incensed that rates are instead rising.
A social media page dedicated to issue has issues, such as one woman who can’t get over the fact that subsidized federal insurance didn’t cover the cost of replacing her wet bar.
They just don’t get it.