On June 13, 2024, in Fort Myers, Florida, the United States, streets were flooded after 24 hours of heavy rain.
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Consumers who are ready to renew Home insurance Policies may experience some unexpected price shocks.
Between May 2022 and May 2023, home insurance prices will increase by an average of 21% at renewal time. According to policy genius.
disastrous rise bad weather Experts say the incident has driven up prices and they don’t expect them to slow down. As insurance companies face higher costs, they pass these costs on to consumers in the form of higher premiums.
However, insurance companies don’t share data on individual homeowners’ premiums and risks, so it’s difficult to calculate how climate risk Already included in the policy price.
“The level of risk and the kinds of hazards that properties can face are changing dramatically,” said Carlos Martin, director of the Renovating Futures Program at Harvard University’s Joint Center for Housing Studies.
“Now, not only are homeowners confused, but insurance companies are confused as to how to do actuarial pricing,” he said.
“Minimum” data provided by insurance companies
Although home insurance premium prices have increased significantly over the past year, this is not a new phenomenon. Until then, between 2012 and 2021 average premium Premiums rose from $1,034 to $1,411, according to the Insurance Information Institute.
Some annual increases during this period were larger than others, said Kenneth Klein, a professor at California Western School of Law, who added that climate change could cause a “fat tail of losses” in the economy as storms The damage caused was not serious.
“For many insurance company “On the Gulf Coast, if they survived Katrina financially, the next year was their most profitable year,” he said. Katrina didn’t happen. This is the challenge of ensuring climate change.
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Find out how premiums will continue to rise to cope bad weather Martin said this is difficult to measure.
“The data are very sparse,” Martin said. “Insurance companies don’t share with the world what they charge individual homeowners, and there isn’t much coverage.”
Scott Shapiro, KPMG’s U.S. insurance leader, said the industry does collect data on weather-related losses to inform policy premiums, but detailed data is not publicly available.
“This data is critical to rate setting and filing,” Shapiro said. “A key challenge is the increasing risk associated with weather and the uncertainty about whether historical losses accurately predict future losses.”
Insurers are pulling back from high-risk areas
The cost of home insurance may rise, but for some areas at risk If a flood or fire occurs, homeowners may have no choice.
For example, in May 2023, State Farm Stop accepting New application for California policy. Allstate announced in November 2022 that it would suspend the state’s new homes, apartments and business policies.
Insurers “won’t give you money because you need it or do the right thing because it feels right,” Klein said. “They are businesses trying to make a profit within a range of laws and regulations.”
Fewer and more expensive insurance options may prove to be an important factor Barriers to Home OwnershipExperts say that’s because most mortgages require insurance.
Florida’s Legislature established Citizens Property Insurance was launched in 2002 to provide an option for Floridians who could not find home insurance in the private market. California’s FAIR program was established as a statute in the state’s insurance law to Provide fire insurance Although it is not a state or public institution, it is not available in the traditional market.
While state-run plans may be a last resort, they don’t always offer the same quality of coverage that private insurance companies may offer.
“They’re sometimes not founded on the same actuarial principles as private insurance companies,” Klein said. “So that’s problematic. It’s generally not very good coverage.”
Martin said those who will feel the pain of rising premiums the most are existing homeowners.
“They feel it because they saw what it cost them when they first bought a home and now they see what it costs them,” he said. “And it’s increasing.”
