The Rising Cost of Home Insurance in the United States: Climate Change and Other Factors

Home insurance has never been more expensive in the United States. Behind this inflation, a major culprit: climate change. Natural disasters have caused for more than $140 billion in damage in the United States last year, and insurers are on the front line. As US citizens see their insurance premiums skyrocket, some are even considering moving.

Jack Hierholzer, a resident of Pensacola, Florida, saw his home insurance premium triple to $6,500 in less than three years. The reason ? Rising costs to insurers due to extreme weather conditions fueled by climate change. He is now planning to leave towndespite his family ties and friends.

The figures are alarming. According to data from Munich Re, a reinsurance firm, nearly $90 billion of damage last year was insured. Reinsurance cost increased between 30% and 40% year over yearaccording to Mark Friedlander, director of corporate communications at the Insurance Information Institute (III).

Climate change is not the only culprit. Reconstruction costs have also increased by around 30% over the past five years, largely due to pandemic-related supply chain disruptions.

In California, insurance premiums are well below the national average, around $1,300, thanks to state laws that give the government greater control over any increases. However, it has made life difficult for insurers, who find themselves unable to pass on the rising costs of increasingly severe wildfires. State Farm, one of the largest insurers in the state, recently announced that it will stop accepting new claims for homeowners insurance in California.

In Florida, premiums have soared due to a combination of factors, including historically generous laws for homeowners seeking to sue their insurers, and the rising cost of hurricane claims. “We have human factors combined with climate risk factors, and that’s a formula for extreme levels of insurance premium,” Friedlander said.

The number of people without home insurance in the United States has remained relatively stable at around 7%, according to III. This is because mortgage holders in the United States are required to have home insurance, which means that only those who can repay their loans in full can take the risk of going without it.

For Hierholzer, the cost of his insurance premium is now higher each month than his mortgage payments. He is weighing that option as he considers his next steps. “If the insurance is so high that I’m effectively buying a new house every 12 years, then it would be a lot smarter not to insure the house, just pay off the mortgage and take the risk,” he said. -he declares.

Towards an insurance industry in crisis: the solutions envisaged

The home insurance industry in the United States is in crisis, and climate change is not the only culprit. Indeed, in Florida, more than a dozen insurers have stopped issuing new policies in the past two years, and seven companies have even gone bankrupt. In Louisiana, rising sea levels have also disrupted the insurance market. California is no exceptionwhere several of the largest insurers have reduced their activities due to increased risks from destructive wildfires.

But beyond natural disasters, other factors contribute to this crisis. On the one hand, inflation, government regulations and costly lawsuits have also chipped away at insurers’ profits. On the other hand, the increasing number of houses built in risk areas, such as floodplains or forest areas, increases vulnerability and costs for insurers.

The debate is on on the best way to save the home insurance industry. Some experts suggest that states need to improve the availability of housing in well-protected areas and create incentives for people to leave at-risk areas. Others argue against limiting premium increases too much, as few people will move to vulnerable locations if insurance is prohibitively expensive there.

Government solutions are also being considered. Some argue for stronger government intervention, such as requiring insurers to offer discounts to homeowners who make their homes less likely to be destroyed by storms or fires. Others suggest that government insurance programs, like the federal flood protection plan and state-run insurance programs, should be greatly expanded to serve as a safety net when private companies cannot provide. cover.