Home insurance premiums are on the rise, with a potential increase of another 6% this year after already climbing nearly 20% over the past two years, according to estimates. Inflation and severe weather events in certain states have driven this price surge, with Insurify reporting an average annual rate increase of 19.8% from 2021 to 2023.
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The insurance comparison site projects that prices will rise by 6% to an average of $2,522 by the end of 2024, with further increases possible in 2025 if the hurricane season meets NOAA's dire predictions.
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Where Insurance Costs Are Increasing the Most
Insurance rates vary significantly based on several factors, including home size, age, claims history, location, and the likelihood of damage. Consequently, not all homeowners will face premium hikes this year. States susceptible to climate disasters like floods and wildfires are more likely to see rate increases, while states like California will experience only slight increases due to regulatory limits.
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Louisiana is expected to see the highest rate hikes due to hurricane damage. Maine is catching up with rising rates due to increased sea levels and flooding. Florida, with some of the country's highest insurance costs, is also likely to see further price hikes, with homeowners already paying an average of $10,996 annually for coverage.
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Here's a look at the top 10 states where homeowners are most affected by rising insurance costs.
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Why Insurance Costs Are Rising So Much
States with high insurance costs often face extreme weather events, which are expected to worsen with climate change. Nearly half of U.S. homes are at risk from climate change, according to Realtor.com. Coastal states are particularly vulnerable to natural disasters, while wildfires pose a growing threat nationwide, costing an estimated $394 billion to $893 billion annually.
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Inflation has driven up building repair costs, leading to higher claims expenses for insurers, who then pass these costs on through increased premiums. Additionally, reinsurance costs have risen, particularly in disaster-prone areas like Florida, causing some insurers to withdraw from high-risk regions. Insurify reports a 35% decrease in available home insurance policies in 2023.
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Climate change also impacts homes outside catastrophic weather zones, with events like large hailstorms and severe thunderstorms causing significant damage. Despite this, 60% of homeowners forgo flood insurance, which isn't covered by standard policies.
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What Increased Insurance Costs Mean for Investors
As climate change intensifies, it will not only drive up insurance premiums but also affect property values. Insurify notes that about 25% of homeowners feel climate change has impacted their home's value. A Congressional report suggests climate-related wildfires could reduce total real estate values by as much as $337.5 billion annually.
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"Climate risk is a big deal," said Jiayi Xu, a Realtor.com economist. "It can impact home values, insurance costs, and the overall stability of a housing market."
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Rising insurance premiums increase homeownership costs, even for properties not directly hit by extreme weather. Commercial real estate insurance has also surged, potentially slowing deal activity as unpredictable costs complicate underwriting, according to Danielle Lombardo of WTW.
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In summary, as natural disasters become more frequent, real estate investors need to closely monitor climate risks, which will impact insurance prices and the broader costs of doing business.
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