Anticipating Record Home Insurance Premiums: When Can We Expect Prices to Drop?

Insurance premiums in the U.S. have skyrocketed year after year, prompting annual increases that may make you reconsider real estate investments in certain parts of the country. Anyone investing in 2024 must at minimum become familiar with which states have seen the fastest growing premium increases so as to incorporate these adjustments into their costs when planning investments.

According to the insurance comparison platform Insurify’s recent report, home insurance premiums are projected to increase by 6% this year after rising 20% over two years – that is only on average; many states will experience double-digit increases thanks to factors like extreme weather events and rising home repair costs.

Let’s delve deeper into these factors affecting state populations–and see which states are particularly impacted.

Extreme Weather Events
It is evident that the frequency and impact of extreme weather events is on an exponential increase across the U.S. In the 1980s, only three storms each year caused $1 billion or more in damages; by 2010, that figure had grown to 13 annually – while in 2023 alone 28 such weather events took place simultaneously!

Florida hurricanes come as no surprise, yet home insurers are becoming more wary of operating there due to their frequency and intensity. Home insurance premiums in Florida were already the highest in the nation at an average of $10,996 in 2023 according to Insurify data; and are set to increase by an additional 7% this year for an average Florida home that costs an average $11,759 on average to insure.

Other states vulnerable to hurricanes are also facing dramatic premium increases. Louisiana is expected to experience the most dramatic increases – 23% on average! Louisiana homeowners’ annual home insurance cost is expected to hit $7,8009. South Carolina and North Carolina also anticipate significant premium hikes of 11% and 10% respectively.

While these increases will likely prove costly for homeowners in these regions, their geographic predictability makes it somewhat predictable. But some investors may be taken aback by double-digit increases projected for states that don’t typically experience extreme weather events.

Maine was long considered a low-risk state, but coastal storm damage risk is now having an impactful effect on insurance premiums there despite being historically considered low. According to Maine Climate Council projections of 1.5 feet relative sea level rise by 2050 is projected. Connecticut also was not previously considered high risk but is now identified as being susceptible to hurricanes, coastal storms and sea level rise.

Unsurprisingly, Michigan and Illinois are seeing significant premium hikes due to wind and hail damage. Reason? Wind chill can reduce home insurance premiums up to 14% while hail damage increases it by 10%.

July 2023 was an especially devastating month for the Midwest, as two billion-dollar storms tore across states from Nebraska to Michigan within just seven days. “Ping-pong to golf ball-sized hail and high winds damaged numerous homes, vehicles, businesses, and other infrastructure” according to NOAA (National Oceanic and Atmospheric Administration).

Home insurance typically includes coverage against wind and hail damage; thus it should come as no surprise that insurers in states experiencing property damages from golf ball-sized hail have begun raising premiums in response.

These extreme weather events might not garner as much coverage, and Tim Zawacki, principal research analyst for insurance at S&P Global Market Intelligence told NPR that many storms don’t make national headlines; yet they have an incredible effect on local communities; this broad spectrum of where storms are hitting is something S&P Global Market Intelligence is increasingly concerned with.

Beyond Climate Change: The Ongoing Building Supply and Labor Cost Crisis
Home insurance premiums have been directly affected by home construction prices; another factor which has contributed to rising premiums since the pandemic started spreading.

Beginning in 2020, costs of nearly every building material skyrocketed, from lumber and construction steel to fiberglass and labor shortage. Overall construction costs continue to rise with one report forecasting 3%-6% increases across the board by 2024.

Cost increases contribute to insurance premium increases–but that is only part of the story. Certain materials with their higher costs have altered what insurers will cover initially.

Property owners in high-risk areas are starting to experience specific structural features or materials being excluded from home insurance policies due to their high rate of claims, such as aluminum or knob-and-tube wiring which has become an insurance risk mitigation strategy for many insurers.

Aluminum used to be four to five times less costly than copper and was therefore an economical way to cut costs in wiring applications. Unfortunately, aluminum wire is much less flexible and more fragile than its copper counterpart; during a storm it could become completely immobilized, thus rendering its use futile.

Future Perspective: Can Home Insurance Crisis Be Fixed? Some insurers are cutting losses and pulling coverage in high-risk areas, particularly Florida where farmers Insurance, Bankers Insurance and Lexington Insurance all pulled out during 2013.

Florida’s home insurance crisis is multifaceted. Reinsurance providers have also pulled out, leaving home insurers no recourse in case their costs exceed what their reinsurance can cover.

One pressing problem facing Florida is fraudulent claims. Indeed, their proliferation is so widespread that lawmakers in this state have taken measures to combat them through legislation.

All these problems exist across states; they’re just more acute in high-risk areas where costs become unmanageable for all parties involved. If this trend continues, “it may become uninsurable in higher risk areas”, according to Betsy Stella, Vice President of Carrier Management and Operations at Insurify. However, where there’s demand there usually will be suppliers; but at what cost?

Reducing home insurance costs could mean restructuring it, following FEMA flood insurance’s model of creating state-run providers focusing on specific natural disasters like Florida is considering for hurricane claims.

Florida policymakers are proposing that Citizens Property Insurance become the sole hurricane provider for Florida residents. Citizens has traditionally served as a last-resort provider, yet increasingly provides all insurance needs of residents who cannot secure another policy elsewhere. Citizens is not too keen on these proposed changes as it could make getting reinsurance harder.

Proposals related to mortgage insurance would enable homeowners to only insure the remaining balance on a mortgage rather than its replacement value, potentially making insurance more affordable but placing them in an awkward situation if their need for claims exceeded what was insured on their remaining mortgage balance.

Final Thoughts
It is difficult to know whether 2024 will bring home insurance market reform in high-risk areas. Legislative changes take time; we will simply have to wait and see which solutions will be implemented–and when.

At present, it may be prudent to avoid investing in areas with known home insurance issues.