The Rising Home Insurance Crisis: Impact on Housing Costs

The Rising Home Insurance Crisis: Impact on Housing Costs



Source: Andy Medici
Austin Business Journal

A significant challenge confronts homeowners nationwide, impacting housing expenses as insurance costs surge.

Recent surveys by Redfin Corp reveal that approximately 72% of American homeowners have experienced increases in their insurance premiums over the past year. Moreover, about 8% reported their insurance providers ceased offering coverage for their residences, while an additional 9% expressed concerns about potential discontinuation of coverage.

Daryl Fairweather, Chief Economist at Redfin, warns that properties in areas witnessing skyrocketing insurance premiums may appreciate less or even depreciate, posing financial risks to homeowners. The looming threats of climate change are expected to elevate the appeal and value of homes situated in low-risk areas with affordable insurance coverage.

Insurance companies are becoming increasingly discerning in issuing or renewing homeowner policies, particularly in states like California and Florida. For instance, State Farm announced the non-renewal of 72,000 policies in California, constituting approximately 3% of its total policies.

Farmers Insurance Co. Inc., based in Los Angeles, halted new coverage for auto, home, and umbrella policies in Florida due to heightened hurricane and severe-weather risks. Similarly, The American Automobile Association Inc. (AAA), headquartered in Heathrow, Florida, ceased renewing combined home, auto, and umbrella coverage in the state.

Projections by insurance marketplace Insurify Inc. indicate a further 6% increase in homeowners insurance rates in 2024, following annual hikes averaging 20% from 2021 to 2023. This would bring the average annual premium to $2,522 by year-end.

However, disparities exist among states, with Florida anticipated to experience a 7% increase, resulting in an average yearly payment of $11,759, while Louisiana is forecasted to see a 23% hike, reaching $7,809 annually. These disparities are attributed to higher risks of natural disasters and escalating building repair costs.

Insurify reports that over a dozen home insurance companies have declared insolvency in Florida since 2019, attributing this trend to challenges in securing reinsurance coverage. Reinsurance rates have surged due to increased natural disaster frequency, inflation, and shortages of labor and materials.

Moreover, insurance fraud and legal system exploitation contribute to Florida's high rates, with residents accounting for 9% of all homeowners insurance claims in the U.S. but initiating 79% of lawsuits over claims. This has resulted in underwriting losses exceeding $1 billion annually for the past two years.

Redfin's survey also indicates that Floridians are more likely to experience insurance rate increases and coverage discontinuations compared to the national average. In California, homeowners similarly face higher rates of coverage termination.

Furthermore, 34% of real estate agents surveyed by Redfin noted an uptick in homeowners insurance during transactions over the past year, with higher percentages reported in Florida and California.

Simultaneously, prospective homebuyers contend with a market characterized by limited inventory and properties requiring substantial repairs and renovations. The prolonged residence of baby boomers in their homes exacerbates this shortage, setting the stage for a generational struggle with profound future implications.

Source: 
A. Medici (2024). Austin Business Journal. Retrieved from https://www.bizjournals.com/austin/news/2024/04/17/housing-market-insurance-home-climate-redfin.html

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5 Properties
$419,999
Condo: Whispering Valley Condo Amd
2
Beds
2F11/2
Baths
1,119
Sq.Ft.
1999
Year Built
20
Days on Site
6113388
MLS
$2,595 / month
Condo: Whispering Valley Condo Amd
2
Beds
2F11/2
Baths
1,119
Sq.Ft.
1999
Year Built
26
Days on Site
9102966
MLS
$399,000
Neighborhood: MYERS, C. SUR
2
Beds
1
Baths
924
Sq.Ft.
1963
Year Built
97
Days on Site
2377530
MLS
$1,150,000
Condo: Marina Village At Lakeway Condo
3
Beds
3
Baths
2,226
Sq.Ft.
2008
Year Built
103
Days on Site
8948415
MLS
$1,400,000
Neighborhood: Burleson, Jonathan
89.44
Acres
193
Days on Site
2145268
MLS

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