CNN: Home Insurance Market Crumbling

Above, Sheldon Whitehouse on Insurance industry’s schizophrenic non-response to the climate crisis.

CNN:

The home insurance market is crumbling in New Orleans, leaving Alfredo Herrera with few options for coverage — and skyrocketing insurance premiums.

Herrera, 35, works in finance for a local bank. He bought his 900-square-foot home in New Orleans’ Mid-City neighborhood in 2020 for $270,000, and lives there with his partner.

In 2022, he paid $1,600 a year for home insurance. But last July, his insurer canceled his coverage, saying it was leaving Louisiana.

In the past, acquiring or keeping homeowners’ insurance didn’t present much of a problem.

But as climate change increases the frequency and severity of extreme weather, insurers — especially those in areas most impacted by floods and fires — are raising their premiums, or pulling out altogether, impacting the affordability and availability of home and fire insurance.

Herrera shopped around for a new plan, but he struggled to find a policy. Louisiana Citizens, the insurer of last resort for property owners in the state, was out of the question. It would have cost more than $7,000 annually.

Herrera eventually found a policy with a small company in the state that charged him $4,930 annually — a 208% increase from what he paid in 2022.

“It’s a very difficult situation,” he said. He never imagined that when he bought his home, private insurance options would be this limited and the last resort insurer would be so expensive.

“We’re against the wall,” Herrera said. “There’s no competition.”

Herrera’s insurance story is common in Louisiana and other places across the country at increasingly higher risk for extreme weather.

There were a record 28 weather and climate disasters with losses totaling over $1 billion last year in America, according to the National Oceanic and Atmospheric Administration. By comparison, between 1980 and 2023, the typical annual average for these events was 8.5.

A Louisiana State University survey last year found that 17% of Louisiana homeowners reported their provider canceled their policy. Sixty-three percent of policyholders said the cost of their insurance coverage increased from the prior year, the survey found.

There was roughly a 10% to 12% increase in homeowners’ insurance costs last year in the United States, said Mark Friedlander, spokesperson for the Insurance Information Institute, a nonprofit industry association.

The main drivers are the higher costs insurers face, including from more severe storms; higher replacement costs; and re-insurance, the type of insurance used by insurers to limit their risks. These are passed on to consumers. So even if a homeowner doesn’t live in a high-risk area, that owner is likely paying a higher premium to cover people in the riskiest places.

In 2023, Neil Fernandes paid $1,700 a year for Farmers Insurance coverage for his home in Santa Clarita, California, where the 42-year-old software engineer lives with his wife and child.

But last year, Farmers said it was raising his premium to $3,200. When he asked why, Farmers cited rising costs and increased fire hazards in the state. Fernandes said the fire hazards around his home haven’t changed and he lives a quarter mile from a fire station.

He started shopping around for other policies, but he found limited options.

Frustrated by the lack of choices, he switched to AAA home insurance for $2,880 a year.

He and his family have had to change their lifestyle to cover the increase. He’s driving less to save on car insurance. They aren’t eating out as much, or traveling, and are putting off home improvement upgrades.

Fernandes is challenging AAA’s assessment of his home insurance value, which he said is over-estimated.

AAA did not comment to CNN.

And he worries about more home insurance price shocks in the future, something he did not anticipate when he bought his home.

“As a home owner, I always worry about things like paying taxes for good schools and community upkeep,” he said. “Now I have to worry about insurance coverage.”