Why is there a home insurance crisis in the United States?
Major insurance companies are grappling with the escalating impact of out-of-control natural disasters.
It prompts them to raise rates and even withdraw from vulnerable markets. Insurance giants are abandoning entire states. This leaves residents with fewer and costlier choices to protect against costly catastrophes.
There has also been an enormous surge in property insurance premiums. The average increase from May 2022 to May 2023 was a staggering 21%.
The aftermath of increasingly destructive weather events makes it insanely expensive for Americans to insure their homes.
More people begin questioning the value of home insurance and having the ability to pay for it.
This questioning is evident in the increasing number of homeowners choosing to forgo property insurance, reaching 12% nationally and soaring to 20% in Florida.
The affordability crisis affects individual homeowners but is also visible in the falling through of pending home sales.
Additionally, the difficulty in securing affordable property insurance impacts real estate development. Dwindling insurance options in disaster-prone states are making housing less affordable.
How is the rising cost of home insurance affecting the housing market?
The burden of rising costs derails home sales and renders condominium buildings ineligible for mortgages. It also dissuades investors from undertaking much-needed developments in housing-starved markets.
The situation is threatening the functionality of the housing market, as insurance becomes a mandatory requirement for those seeking mortgages.
In some of the country’s strongest housing markets, the impact of skyrocketing home insurance is palpable. It is not just about higher premiums, but also about broader implications on real estate transactions.
For instance, in Florida, the state with the nation’s highest home insurance premiums, seven property insurers have entered insolvency since 2022.
The state-backed insurer of last resort, Citizens Property Insurance Corp, now holds 1.26 million policies. It comprises 15% of the market share in Florida.
This alarming trend has led U.S. Senator Sheldon Whitehouse to launch an investigation into Citizens, citing concerns over insolvency and the potential need for a federal bailout.
What factors are contributing to the dwindling number of homeowners in America?
Several factors are converging to create a perfect storm in the home insurance landscape. The situation is a complex interplay of (amongst others) climate change and insurance market dynamics.
For example, three consecutive years of underwriting losses have left property insurers grappling with financial challenges.
Also, the increasing frequency of weather events causing at least $1 billion in damage is further exacerbating the situation.
Moreover, the influx of people into disaster-prone areas, coupled with the construction of new homes and commercial properties, is driving up demand for insurance.
As a result, insurers are limiting business in high-risk states, seeking substantial rate increases, or reducing coverage areas.
Amid the relentless insurance hikes and state-wide retrenchments, consumer groups have begun to push back.
They emphasize the need for states to play a larger role in keeping citizens insured at reasonable rates.