Ask an Agent: Does Your Car or Home Insurance Premium Subsidize High-Risk States?

Insurance rates are soaring across America, hitting some states harder than others. Homeowners insurance rates have spiked nearly 20% in the last two years, while car insurance rates have risen a shocking 15% in the first half of 2024 alone.

High-risk states like Florida and Louisiana, where homeowners and drivers alike see millions of dollars in damage to their homes and vehicles in the aftermath of extreme weather events, aren’t the only places experiencing these price hikes.

Homeowners in states like Michigan, which has historically enjoyed more stable, lower-than-average home insurance rates, saw an 11% hike between Q3 2023 and Q1 2024 alone. Minnesota, where car insurance is typically more affordable than the national average, saw a 44% price increase in the first six months of 2024.

Rising prices have led some policyholders in states with historically low rates to wonder if their premiums subsidize states with higher climate catastrophe, theft, or car accident risks. The short answer is no, they don’t.

Each state has intricate insurance regulations, and many states require insurers to share their rate-setting models and submit rate changes for approval before they can implement them. 

Mallory Mooney, director of sales and service at Insurify and a licensed insurance agent with experience in every state, shared her insurance expertise and provided more context to these answers.

Is your car or home insurance premium paying for higher-risk states?

No, insurance companies and state regulators set rates on a state-by-state basis.

Insurance companies base home insurance rates on the losses and risks associated with each state. A state’s division or department of insurance (DOI) shapes insurance regulations, reviews rate filings, and approves or denies rate increases.

In Florida and Louisiana, climate catastrophes contribute to insurer losses and make some properties more risky to insure.

Risks or losses in other states won’t affect your premium, but your neighbors could, says Mooney.

“Insurance companies consider the risk of future claims and historical losses in rate setting. For instance, if an insurance company is covering four houses in a hurricane-prone neighborhood, the fifth house [trying to get coverage] might have three times the premium. The insurer is taking on the risk that one storm could wipe out all five houses. Saturation in an area can impact rates through no fault of the insured.”

Because saturation is a rate-setting factor, comparing home insurance quotes with multiple insurers may help policyholders find a lower premium.

Severe hailstorms and falling debris can total a car, but climate risk saturation plays a smaller role in auto insurance pricing, says Mooney.

“More insurers are worried about being in urban or rural areas since accident saturation is influenced by population density. The uninsured motorist rate in your state can also affect premiums. In no-fault states, you’re essentially paying for drivers who don’t have coverage and all the insurance fraud that exists.”

Why isn’t there a federal agency that regulates home and auto insurance companies?

State-by-state insurance regulations, rate restrictions, and minimum requirements are too different for a unified agency to regulate them.

The Federal Insurance Office (FIO) monitors the insurance industry, tracks access to affordable non-health insurance products in underserved communities, and advises the Secretary of the Treasury.

But the FIO doesn’t have any regulatory authority over the business of insurance, according to the National Association of Insurance Commissioners (NAIC). The McCarran-Ferguson Act, approved by Congress in 1945, gives the states that sole responsibility.

“The states are all too different to say, ‘Let’s merge it all together and operate on a federal level,’” said Mooney.

Mooney doesn’t foresee federal agencies taking over, because, in short, switching to federally regulated home and auto coverage would be a bureaucratic and legislative nightmare.

“States are so different in how they handle insurance. There are so many intricate details and expectations. There are different minimum coverages and state laws,” said Mooney, who’s been a licensed insurance agent in all 50 states throughout her decade-long career and currently maintains licenses in 20.

Climate risks, population density, accident rates, and local legislation influence the insurance market in every state, so insurance operates more effectively in certain states.

“The Pacific Northwest is pretty straightforward. Most New England states are too, even though we drive crazy here,” said Mooney, a Bostonian.

No-fault states like Florida and Michigan have different minimum requirements, like personal injury protection (PIP). No-fault systems have different challenges than at-fault states, too.

“Often [in no-fault states], there’s just so much fraud. They almost need to go back to the drawing board on how they’re doing insurance,” said Mooney.

In 2021 and 2023, the Florida legislature considered two bills: one that would have reformed the no-fault system by eliminating personal injury protection coverage requirements and one that would have changed auto insurance to an at-fault system. Gov. Ron DeSantis vetoed the first bill, and the second died in the Florida Senate.

Regulatory environments also vary, and “some states are notoriously easier for insurers to operate in than others.”

Colorado insurers can implement premium increases as soon as they file rate changes with the state’s DOI, but state insurance regulators can later deny or amend rate hikes. California, on the other hand, is slower to approve rate increases and has robust consumer protection laws that limit insurers’ ability to deny certain claims or cancel or non-renew policies after wildfires.

Will insurers ever set national rates to spread out risk from high-loss states?

Probably not.

As climate change progresses, more areas of the United States will become essentially uninsurable — meaning insurers have to set such high rates to stay solvent that consumers will be unable to pay their premiums.

Insurers are also seeing rate increases from reinsurance companies. Reinsurance, essentially insurance for insurers, provides protection for the cost of catastrophic losses so insurers can remain solvent. As the frequency of hurricanes, wildfires, and other severe weather events increases, insurers will increase premiums to keep up with rising reinsurance rates.

Still, national insurance rate setting is unlikely, says Mooney.

“I don’t think insurers could pass on the loss from one state to another with all the state-by-state differences in industry regulations. I could see state governments intervening and needing to provide insurance for high-risk areas more often, but I don’t see the federal government stepping in any time soon,” said Mooney.

The number of states where insurers are losing money has more than doubled in the past decade and now represents about a third of the country, The New York Times reported in 2024. In some of those states, like Florida and Louisiana, insurers are paying as much as $1.50 in claims for every $1 they earn in revenue, making operations unsustainable.

If insurers spread risk evenly across the country, Vermont homeowners would pay $1,459 more per year for insurance compared to their state’s average premium. Florida homeowners, on the other hand, would see an annual savings of $8,619.

The table below shows how much more or less homeowners would pay if policyholders in every state paid the U.S. average of $2,377 annually for home insurance.

Methodology

Insurify data scientists turned to their real-time database of insurance quotes from partner carriers, as well as aggregated rate filings from Quadrant Information Services to determine the average cost of home insurance.

Home insurance rates represent the 2023 annual average for an HO-3 insurance policy for homeowners with good credit and zero claims within the past five years covering a single-family, frame house with the following coverage limits: $300,000 dwelling, $300,000 liability, $25,000 personal property, $30,000 loss of use, and a $1,000 deductible.

Car insurance rates come from Insurify’s proprietary database and represent full-coverage premiums with limits between state-minimum rates and $50,000 per person, $100,000 per accident in bodily injury liability coverage; property damage liability limits between $10,000 and $50,000; and comprehensive and collision coverage deductibles of $1,000.

Rates reflect drivers between ages 20 and 70 with average or better credit and clean driving records. For additional information, visit Insurify’s data center.