Monday Market Update: The Cost Of Coverage

Higher premiums. Fewer options. A loss of longtime coverage altogether. These are just a few of the issues that have plagued homeowners in the last few years when it comes to insuring their homes and property. Realtor.com® reports that national home insurance rates have jumped nearly 34% from 2018 through 2023, with over 11% of those costs occurring in 2023 alone. In some states (such as Texas), that rise has been as much as 60%.

Industry sources cite the main reasons behind rising costs as climate risks: floods, heat, wind, wildfires and air quality. Almost 50% of US homes “are at risk from severe or extreme damage from environmental threats, affecting nearly $22 trillion in real estate,” according to a recent Realtor.com® publication. (View the risks and map HERE.)

Not surprisingly, California ranks among the top ten states where insurance costs have risen the most in the last 5 years, coming in at #8 with an average effective insurance rate change of 43.7%.

Given that calculating climate risk is out of our control – what can we do? In most cases, homeowners accept higher premiums from their current provider and find it worthwhile to shop policies and compare coverage annually (although the options are getting fewer as some insurance carriers are not allowing new policies in certain areas at all). Other homeowners are opting to move to areas where environmental risk and insurance cost are lower. Some regions offer state plans which are a last resort to customers who are deemed ‘too risky’ by private insurers (though these are typically expensive and may require gap coverage).

In extreme cases, people who can pay off their homes, drop their insurance coverage and assume the risk of damage and repair on their own! The Insurance Information Institute and Munich Reinsurance America report that 12% of homeowners did not purchase homeowners insurance last year.

The implication for home prices is also a concern for buyers. Primarily, the cost of coverage is rising while home prices are also rising, creating a higher monthly payment for those purchasing today. In Louisiana, which has been historically ravaged by hurricanes, 30-40% of home sales fall out of contract when the buyer gets the insurance quote and sees the rate. On the flip side, S&P Global Market Intelligence predicts that “if home insurance premiums were expected to rise 20% annually for the next 20 years, home prices could fall as much as 10%.” Thus, a home that is harder and more costly to insure will ultimately be worth less. This implication has been evidenced by sea level rise and the flood insurance premiums affecting home prices.

Financial status may become the leading factor in who can live in which environmental risk areas. Experts assert that only those who are wealthy may be able to live in the storm-prone coastal areas and wildfire risk regions, while retirees and those on fixed incomes may seek to live inland and in lesser risk zones.

The less discussed solution, according to the Alabama Center for Insurance Information and Research at the University of Alabama in Tuscaloosa, is to build homes that are more resilient in withstanding natural disasters. If you are in California and in a high-risk wildfire zone, you may wish to read about how to harden your home for wildfire resistance HERE.

While this was admittedly not the most joyous topic to cover, it is a necessary and important one. Ensuring that you and your family are safe, and that you are aware of the options and factors that can impact insuring your home, is a top priority for us and should be for anyone you work with.

Cheers to making good decisions with a great knowledge base,

Bobbi

Bobbi Decker
DRE#00607999

Broker Associate, Bobbi Decker & Associates
650.346.5352 cell
650.577.3127 efax
www.bobbidecker.com
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