SEVERE WEATHER AND WILDFIRES ARE MAKING YOUR INSURANCE COSTS RISE
Increasingly, climate risks such as hurricanes, floods and wildfires are causing insurance payouts that exceed the premiums insurers are collecting. This leads insurers to raise rates or reconsider insuring certain areas altogether.
With each major weather or fire event, U.S. homeowners are at increasing risk of losing home value due to rising insurance premiums and/or reduced coverage. In some cases, home values may fall lower than the amount owed on the mortgage (putting the homeowner “underwater”). In other cases, homeowners may forego home insurance, bearing the full financial risk of any property damage or loss.
The effects are already visible in many parts of the country where homeowners are resorting to state programs that provide bare-bones coverage for high-risk properties. State plans, however, are often more expensive and cover less. With fewer affordable insurance options for and rising costs of homeownership, the home values in these areas are at risk of falling.
Severe Weather and Wildfires Cause Insurers to Pull Out of California and Florida
Claims paid due to severe weather, hurricanes and wildfires are threatening insurance companies ability to offer new policies. In July 2023, Farmers Insurance stopped selling new home policies in California and is also limiting new insurance policy sales to Florida homeowners. According to news reports, nearly ⅓ of Farmers’ policyholders in Florida would be affected by the company’s retreat. State Farm and Allstate have also decided to stop offering new home insurance policies in California, citing wildfire risks and rising rebuilding costs.
California Announces Plan to Protect Homeowners
In September 2023, California announced that it will transition homeowners and businesses out of its FAIR plan (the state’s insurance of last resort) and back into the private insurance market. To do business in California, insurance companies must write no less than 85% of their statewide market share in communities at high risk for wildfires. Other key provisions include:
Giving FAIR policyholders who comply with California’s “Safer from Wildfires” program first priority to transfer to the private insurance market.
Expansion of FAIR’s commercial coverage to $20 million per building in order to close insurance gaps for homeowners associations and condominium developments.
Improvements to FAIR’s financial safeguards and increases to its reserve intended to keep the plan solvent.
In High-Risk Areas Insurers are Declining to Renew or Sell New Homeowners Insurance
Insurance companies have been increasingly declining to renew home insurance policies in high-risk areas, with non-renewals rising by nearly 800% from 2015 to 2021 in at-risk ZIP codes across the country, as indicated by a study conducted by First Street Foundation. This situation occurs when an insurer chooses to discontinue coverage at the end of the policy period, often due to a high volume of claims resulting from severe weather and natural disasters in the area, or when the insurance company decides to withdraw from the area for business reasons.
In the event of a non-renewal notice or an increase in premiums from your home insurance company, there are other options to consider:
Shop around for home insurance: It’s important to promptly seek a new home insurance policy to avoid a lapse in coverage. Comparing quotes from multiple companies is recommended, as insurers have their own unique methods of calculating rates.
Consider an insurer of last resort: If you encounter difficulty in finding a company willing to provide coverage, you may need to explore a state plan for home insurance. These plans typically offer limited coverage and are generally more costly. Each state has its own eligibility criteria, such as requiring a minimum of two declines for home insurance from other companies.
