Insurance premiums rise when natural disasters strike. What homeowners can do
It’s been a rough ride for home insurance customers.
Major insurer this summer Allstate announced an average interest rate increase of 34% in California, while State Farm was approved for a similar rate increase.
Of major unrest in the insurance marketsthousands of homeowners are seeing their premiums skyrocket, while other households are simply being dropped from their policies – even as they have become increasingly vulnerable to climate-related factors such as wildfires and hurricanes.
More frequent and extreme weather events have contributed to higher operating and infrastructure costs for insurance companies, especially in coastal areas like Florida and historically low-risk states.
“Insurers pass these costs on to consumers by increasing premiums to cover losses and costs,” said Shiloh Elliott, press secretary for the Florida Office of Insurance Regulation.
Nationally, home insurance rates have increased by 11.3% in 2023, according to S&P Globaland are continues to rise this year.
Although homeowners must protect their greatest asset, they are not powerless. Experts say there are still ways to lower your insurance costs and soften the impact of high rates.
Why are home insurance rates going up now?
Inflation is a factor in the sharp increase in home insurance rates. As the costs of building materials and labor rise, repairing and rebuilding properties becomes more expensive. Insurers say yes pay out more on claims than they have received in premiums and cannot cover the rising costs of replacing a house or roof after it is damaged in the next storm.
And speaking of storms, the US has seen it a record number of hurricanes and wildfires in recent years. “All of these create quite significant losses” for insurers having to pay out claims, says Jon Godfread, North Dakota Insurance Commissioner and president-elect of the National Association of Insurance Commissioners.
Godfread says that while insurance companies maintain additional reserves to cover catastrophic losses, they will eventually raise rates to offset the large payouts to homeowners in an effort to restore profitability.
Which parts of the country are seeing the biggest spikes?
States like California and Florida, with high concentrations of intense wildfires and hurricanes respectively, are seeing some of the largest spikes, with some insurance companies increasing their premiums by 50% or more. The situation is so dire that a handful of insurers have done so completely withdrawn of the market in certain states, citing disaster risks.
Insurance companies spread risk across a large national market, so that premiums from states less prone to disasters subsidize payouts in higher-risk areas. That means even households in states like North Dakota, which don’t experience many major storms, will see their interest rates rise to compensate for the greater risks elsewhere, Godfread said.
Read more: Zillow real estate listings add climate risk data
How to lower your home insurance premium
There are a few ways you can hedge against rising premiums or at least get a better deal. Here’s what the experts recommend:
✔️ Look around
Many homeowners usually stick with one insurance company for the long term and grit their teeth during premium increases. But don’t be afraid to talk to different companies and agents. You’ll likely find different prices for the same coverage, and you may be able to save money by switching insurers.
Godfread encourages homeowners to explore new coverage options and get different quotes. You might also want to look beyond what your insurance broker has to offer, as many brokers only have access to a small part of the market, says Godfread.
✔️ Search for discounts
Always look for a “bundle discount.” If you use the same insurance company for homeowners And car coverage, you can sometimes get a discount on your premium, says Godfread.
Your insurance plan may also include other, lesser-known discounts. Ask the insurer or your insurance broker if there are any discounts you may be eligible for.
✔️Consider increasing your deductible
With each type of insurance, the lower your deductible, the higher your monthly premium. (Your deductible is the amount you have to pay before your insurance kicks in and starts paying out. So if you have a $1,000 deductible, you’ll have to pay that amount before insurance covers the rest.)
But that works both ways: you can increase your deductible to lower your premium. For example, if you increase your deductible to $5,000, you’ll pay less on your monthly bill. Make sure you have $5,000 cash on hand in case of an emergency to cover home repairs before your insurance takes effect.
✔️Don’t neglect the maintenance of the house
An overlooked way to help with home insurance costs is to maintain your home to reduce the risk of damage. If you live in an area prone to wildfires, you can clean up debris that could catch fire. Or if you are in the path of hurricanes, consider pruning tree branches that could fall on your home during a storm.
Although insurers typically do not offer rebates for these types of mitigation efforts, some insurers may offer rewards for certain home improvements or upgrades.
✔️ Tap on your state’s resources
Each state has a department that deals with home insurance issues and regulates the industry. These agencies can also provide consumers with a wealth of resources. Godfread says you can get free, unbiased advice to help you understand your coverage or your options for something new.
Never go without insurance
Looking for cheaper options to protect your property can take time and effort. But as tempting as it is to cut home insurance completely, you don’t want to foot the bill when disaster strikes.
If you live in an area prone to wildfires, floods, hurricanes or other natural disasters, an insurance company may determine that your home is too risky or expensive to insure. If you don’t get coverage, ask the company to explain why. If the reason is based on something within your control, such as weatherproofing your home, you may be able to repair it and reapply.
You can also shop around to find an alternative. Even if you don’t qualify for a standard plan, you may be able to get a customized policy that provides some coverage in case of an emergency.
Read more: Climate change makes homeownership more expensive. Here’s how to weather the storm
