Severe weather is driving home insurance rate hikes
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Climate change increases the frequency and intensity of severe weather events, causing costly damages and reducing insurance affordability, according to the Environmental Protection Agency (EPA).
Texas experienced $400 billion in damages and ranked fourth for home insurance costs in 2023. While Florida experienced less damage — at $390 billion — it has the most expensive premiums. Louisiana is also of note, with the second-highest rates and the third-highest cost of damages, at $310 billion.
Wildfires are a growing concern, especially in Texas and the Western United States. Damage from wildfires costs the U.S. an estimated $147.5 billion annually, according to a 2023 congressional report.
But without the financial backing of reinsurance, more insurers may leave wildfire-prone states. Under the Fair Access to Insurance Requirements (FAIR) Plan, a state-run high-risk pool that provides fire insurance, California ’s reinsurance cost was 60% higher than the maximum approved premium in 2023, a First Street Foundation report found.
As insurers halted new business in unprofitable, high-risk areas, the number of available home insurance policies decreased by 35% in 2023. Customers who renewed policies with the same insurer saw an average rate increase of 23.7% in 2023 compared to 10% to 12% in previous years, according to Matic.
The forecasting company Weather Bell predicted a “hurricane season from hell,” projecting six to eight major hurricanes (out of 14 to 16 total hurricanes) to touch down in the U.S. in 2024.
“A ‘hurricane season from hell’ could pile crisis upon crisis,” said Stella. “The financial solvency of all insurance companies will be tested. Perhaps especially newer providers who have stepped into the market recently. Citizens [Florida’s insurer of last resort], too, will be tested.”
Policyholders won’t see rate changes immediately, according to Stella. Insurance companies reassess rates based on anticipated payouts, file for increases, and get the necessary approval from state regulators before raising premiums. Since most homeowners policies have a 12-month term, policyholders may not see price hikes for as many as 18 to 24 months.
“Storms don’t need to make national headlines to wreak havoc on a home,” said Dr. Ian Giammanco, managing director of standards and data analytics for the Insurance Institute for Business & Home Safety (IBHS). The IBHS Research Center focuses on improving building standards and fortifying homes against severe weather and natural catastrophes.
“In 2023, the U.S. had more than 1,750 reports of 2-inch or larger hail and 19 severe thunderstorm outbreaks, compared to only two landfalling tropical cyclones. These severe convective storms resulted in record-breaking insured losses in excess of $50 billion, with hail damage accounting for a large percentage,” said Giammanco. “Fort Collins, Colorado, remains the only city in the United States with a hail provision in its building code.”
One-fourth of U.S. homeowners say climate change hurts their home value
The majority of American homeowners (60%) say they don’t feel climate change has affected the value of their homes — but 25% say they do.
Among homeowners who have filed a claim, 40% say climate change has affected their home’s value. Gen Z (29%) and Millennials (32%) are also more likely than Gen X (14%) to say it has. Generational differences could be due to participants’ overall views on climate change.
Americans between ages 18 and 29 are most likely to say human activities, such as burning fossil fuels, contribute to climate change a great deal, a 2023 Pew Research survey found. The number drops from 59% between ages 18 and 29 to 49% between ages 30 and 48, and 38% of those aged 50 and older.
As more Gen Z homebuyers enter the housing market, areas with high climate resiliency may become more desirable than states more affected by climate change.
Has Climate Change Affected Home Value? | | | | |
|---|
| Yes | 25% | 29% | 32% | 14% |
|---|
| No | 60% | 55% | 53% | 70% |
|---|
| Not Sure | 15% | 17% | 15% | 15% |
|---|
*Percentages are rounded to the nearest whole number, so the sum of all answers may not equal 100%.
Most skip flood insurance, and 22% of Gen Z doesn’t know how it works
Flooding frequency has increased dramatically across the U.S. coastline as sea levels rise, according to the EPA. Damages from flooding events across the country totaled $7 billion in 2023, NOAA data shows.
But standard homeowners insurance doesn’t pay for flood damage, and most homeowners aren’t covered.
Water or flood damage (20%) was the most common reason homeowners filed a claim, but 60% said they don’t carry separate flood insurance in a February 2024 Insurify survey. An additional 13% said they thought their regular home insurance would cover floods.
Gen Z homeowners are more likely than other generations to believe their home insurance covers floods (22%). But they’re also the most likely to have flood insurance, with 32% carrying a separate policy compared to 30% of millennials and 18% of Gen X.
“Covering water damage on a traditional home policy can be confusing,” said Buddy Parkhurst, a licensed insurance agent at Insurify.
“Damages from outside waters coming into the home will only be covered by a flood policy. If it’s wind-driven rain damage, this will be covered on your home policy. Water damages that are covered automatically typically include a burst pipe from freezing or an appliance malfunction like your water heater, washer, or dishwasher.”
In other cases, including hidden water damage from pipes in the walls or backup from your sump or sewer, your insurer may require an additional endorsement on your policy, says Parkhurst. “Even foundation water damage can be endorsed.”
As flood frequency increases, homeowners without coverage are more vulnerable to unexpected financial losses. Homeowners can purchase flood insurance through the FEMA-managed NFIP or a private company.
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