Homeowners in disaster-prone states need to be prepared for increasing costs—and even dropped coverage.
In addition to the lasting damage and trauma natural disasters impart, they are also incredibly expensive events. Major economic losses are a given, but what we’re talking about today is the financial impact on the insurance industry and its policyholders. Namely: rising premiums.
Insurance providers in disaster-prone areas have been hit hard in recent years. In 2020 alone, they paid out an estimated $83 billion in global natural disaster claims. Premiums are going up, and some people are getting dropped from their insurance policies altogether. As of now, there are no long-term or lasting interventions to protect policyholders.
We want you to feel as prepared as possible for any cost hikes. Our team is here to help you navigate all of life’s unpredictable events.
6 Steps to Prepare for Higher Property Insurance Premiums
1. Ballpark what your new premium might be
All insurance rates are regulated at the state level which means every state handles them a bit differently. If your state governing body approves an increase in insurance rates, there’s unfortunately not much you can do to stop your premium from going up. If your area has been heavily impacted by natural disasters, research if your current provider is proposing a rate change. This will help you determine how much you’ll need to budget for and save.
Premium increases aren’t a new phenomenon. Prices have been on the rise for the past decade. The National Association of Insurance Commissioners’ most recent report cited an average increase of 3.3 percent across the country between 2017–2018 alone.
More shocking are the double-digit increases that states with major natural disasters have been facing. ValuePenguin has charted the most dramatic cumulative rate increases by state from 2016–2021, and it’s worth noting that some of the most massive hikes have hit in the past six months, just after a particularly brutal year of hurricanes, wildfires, and tornados. For example, over 55 of the 105 rate changes the Florida Office of Insurance Regulation approved at the end of 2020 were for more than 10 percent.
Largest Rate Increases, 2016–2021
|State||Cumulative Rate Increase|
2. Shop around for a new provider
If you have a choice of insurance providers in your area, switching to a new policy is likely where you’ll see the biggest savings. An insurance broker can help you navigate your options, but it’s also something you can research on your own. Start by asking your neighbors who covers their home and property, then calling to request a quote.
3. Invest in the right home improvements
Your insurance agent will know if there are updates you can make to help your home withstand future natural disasters and simultaneously lower your premium payments. Things like storm shutters, reinforced roofing, sprinkler systems, sump pumps, and leak sensors can shave off dollars, while also helping to protect you, your family, and your possessions.
Also, double-check if there are things you can do on your surrounding property. In extremely dry areas, for example, FEMA recommends a 30-foot safety zone around your house (and a secondary zone of up to 100 feet) to act as a moat for wildfires.
4. Double-check what you’re paying for
Keep a close watch on your contract’s fine print. As insurers get more desperate, it’s not uncommon for them to slip in language around what is and is not covered by a policy. For example, damage from “named storms” may not be covered unless you pony up for an additional rider.
5. Consider increasing your deductible
Deductibles get complicated when natural disasters come into play. Lots of policies will have a separate deductible for, say, earthquakes if you’re in California or tornado damage for Oklahomans. Generally speaking, though, the higher your deductible the lower your premium. The Insurance Information Institute calculates saving as much as 25 percent on premiums if you increase your deductible from $500 to $1000.
6. Know your back-up provider if you get dropped from your policy
Some states make it easier than others for insurers to pass their costs through to policyholders via maneuvers like increased premiums. For states that don’t (like California), it’s unfortunately not uncommon to see non-renewals and policy cancellations in high-risk communities.
If a policy through private insurance isn’t possible, you’ll probably have to turn to a state-sponsored program. The good news: you’ll have insurance. The bad news: these plans tend to cost even more than private insurance.
Thirty-five states have a version of a Fair Access to Insurance Requirements (FAIR) Plan, which are typically tailored to meet the needs of that state. California’s covers brush fires, for example, while New York’s covers wind and hail in certain communities. Several coastal states also offer a counterpart to FAIR Plans called Beach and Windstorm Plans.
To get more info on your state’s sponsored plans, call your state’s insurance office, or connect with a local insurance broker.
Why Did Insurance Premiums Increase So Much?
Short answer: climate change. Rising temperatures are creating more powerful storms in coastal areas, and sparking more intense wildfires across the West and Southwest. Costs to insure and rebuild are skyrocketing.
One 2020 survey found that climate change is the top concern for insurers right now, and as the landscape gets riskier, they’re scrambling. Two states have been in the headlines a lot, and help showcase why premiums are ratcheting up so much and so quickly.
Spotlight on Florida’s incredible price jumps
In December 2020, the Orlando Sentinel reported that residents of central Florida may experience premium rate increases of as much as 30 percent. It’s a jaw-dropping amount, especially considering Florida already has high insurance rates. A homeowner in Miami might pay over $4,000 annually, compared to the nationwide average of $1,249.
Florida’s history of high premiums stems from a lack of options. Most major insurance companies don’t even offer coverage because weather events make it too risky. The smaller providers that do are grappling with huge reinsurance costs, losses from past hurricane seasons, and other issues, which they then pass through to their policyholders in the form of price jumps.
Florida residents who don’t have access to any private insurers (or who don’t want to pay an extreme price tag) are left with the state’s Citizens FAIR Plan, the so-called “last resort” which has accrued half a million policyholders. FAIR plans are traditionally more expensive than what’s offered by private insurers, and also contribute to the statewide sticker shock many Floridians are facing.
How California is dealing with policy non-renewals and cancellations
We mentioned California makes it more challenging for insurers to increase their premium pricing which can result in an uptick of policy cancellations for homeowners who live in areas threatened by forest fires.
The Insurance Commissioner in California issued a temporary moratorium in November 2020 that has halted all cancellations and non-renewals for residential property policyholders who live within a certain radius of the summer’s deadly wildfires. The moratorium, which followed similar emergency declarations issued in the summer and early fall, protects a whopping 18 percent of California’s residents.
It’s an effective solution, but temporary: this moratorium will only last one year. Extensions are possible, but the local and state governments are still figuring out viable long-term solutions that work for both the property owners and the insurance carriers.
Want some help navigating how your property insurance fits into your real estate planning? Reach out to our team today.
Read more from our blog: