HomeHome InsuranceAmerica is running out of home-owners insurance

America is running out of home-owners insurance

It’s becoming harder — and insanely expensive — to insure a home in America.

And that’s not just a household budgeting problem.

As once-routine weather events become increasingly destructive, the rising cost of home-owners insurance threatens to further stall a national housing market that’s already groaning under the weight of high interest rates, rising prices and surging construction expenses.

The impact of skyrocketing property insurance is being felt nationwide.

It’s derailing home sales in some of the country’s strongest housing markets.

It’s making condo buildings ineligible for mortgages.

And it is disincentivizing investors from buying and improving on much needed new apartments in markets that are starving for them.

Some insurance giants are abandoning entire states, leaving residents fewer and costlier choices to protect against costly catastrophes.

“You can’t have a functioning housing market without insurance,“ said Jonathan Miller, president of real estate appraiser Miller Samuel Inc.  “People getting mortgages are required to have it.”

A scene from the devastation in Maui last August, where wildfires caused dozens of deaths and billions of dollars worth of property damage. AFP via Getty Images

Premiums for US homeowners’ insurance jumped by an average of 21% from May 2022 to May 2023, according to a study by online insurance marketplace Policygenius.

That eclipsed the already staggering 12% rise from the previous year. 

The numbers are even more eye-opening at the local level.

Insurer USAA raised premiums by 37% in Arizona last year, and 35% in Colorado, according to S&P Global Market Intelligence‘s RateWatch, which tracked rate filings by the largest underwriters in each state. 

Progressive Corp. pushed through a 57% rate hike on renewals in North Carolina.

Farmers Insurance Group boosted premiums in 43 states including a 25% bump in Texas, where a May storm with golf-ball sized hail wrought $1.6 billion in damage.

In Florida, Farmers pulled its insurance business entirely from the state in July, leaving as many as 100,000 policies ineligible for renewal.

And the company stopped issuing new contracts in California, where an estimated 1.2 million homes are at risk from wildfires. 

A palm-sized ball of hail from a massive storm that descended upon Texas last May, causing huge amounts of costly damage. Tribune News Service via Getty Images

US property insurers are hurting following three straight years of underwriting losses—including $6.7 billion in 2022 alone, according to insurance credit rating agency AM Best.

That’s unlikely to change anytime soon as the number of weather events causing at least $1 billion of damage continues to surge: There were 25 in 2023, according to the National Oceanic and Atmospheric Administration – including August’s wildfires on the Hawaiian island of Maui, which engulfed the town of Lahaina and caused an estimated $5.6 billion in losses.

That’s up from 18 in 2022, most notably Hurricane Ian on Florida’s Gulf Coast, which was the second costliest hurricane in US history with as much as $60 billion in insured losses, according to the Insurance Information Institute. 

“It’s the number of medium-sized events that have made the impact,” said David Marlett, managing director of the Brantley Risk & Insurance Center at Appalachian State University. “A hailstorm across the Midwest…was not a big insured event, but now it seems to be a billion-dollar loss.”

“The growth of coastal areas in Florida was a major factor in the volume of loss we saw from Ian,” said Mark Friedlander of the Insurance Institute. iii.org

Catastrophes like Maui and Ian are much of the reason it’s also more expensive for insurers to insure themselves.

The renewal costs of “reinsurance” –-  policies insurers buy to share the risk of covering enormous claims  – rose as much as 50% on January 1,  broker Gallagher Re said in a report this week. 

“That ends up getting passed on to the customers as well,” said David Blades, associate director, industry research analytics at AM Best.

Then there’s migration.

The pandemic era inflow of people into places like Florida — which welcomed over 650,000 newcomers since 2020 – and the resulting construction of homes and commercial properties means more assets to insure, and more demand for payouts in the event of a catastrophic event.

Progressive Insurance raised rates in North Carolina by 57%.

“The growth of coastal areas in Florida was a major factor in the volume of loss we saw from Ian,” said Mark Friedlander, director of corporate communications for the Insurance Information Institute. “If you took the same storm 20 years ago . . . you would not have seen those losses.”

Unsurprisingly, many insurers are limiting business in high-risk states, while those who remain are seeking substantial rate increases, or reducing coverage areas. 

Take Florida — home to the nation’s highest home insurance premiums. 

Seven property insurers have entered insolvency since 2022, while others have simply given up on the state. 

Florida’s state-backed insurer of last resort, Citizens Property Insurance Corp, now holds 1.26 million policies and has the largest market share — 15% — of any Florida insurer, according to the Insurance Institute. U.S. Senator Sheldon Whitehouse (D-RI), chairman of the Senate Budget Committee, launched an investigation of Citizens last month, citing concerns over insolvency and the potential need for a federal bailout. 

The difficulty in securing affordable property insurance is impacting real estate development. Christopher Sadowski

Dwindling insurance options in the most disaster-prone states “is going to make housing less affordable,” said Marlett. “At some point you can see a reasonable person questioning the value [of insurance] and having the ability to pay for it.”  

That point may be now. 

Nationally, 12% of homeowners are choosing to forgo property insurance – up from 5% in 2015, according to an Insurance Institute survey. 

In Florida, the share of homeowners deciding to “go bare” runs as high as 20%, Friedlander said.

One of them is former Palm Beach County mayor Gregg Weiss, who famously dropped insurance coverage last year after the annual cost of his windstorm policy doubled to $20,000.

Louisiana for instance, launched a program to help residents hurricane proof their homes, lessening the potential for losses, said Carmen Balber of California-based Consumer Watchdog. Michael Reynolds/EPA/Shutterstock

But that’s only an option for owners who, like Weiss, have no mortgage.

Those who require financing may have to forgo home purchases entirely, as insurance burdens tip the costs of owning a home beyond reach.

In Jacksonville, Florida, real estate agent Heather Kruayai said that 25% of buyers who’ve signed contracts for one of her sales listings backed out after receiving insurance estimates.

“They’re getting the rates and they’re astronomical,” Kruayai, an agent with Redfin, said. As a result, mortgages are being rejected, effectively killing off deals.

(Kruayai herself felt the sting of a hefty insurance estimate: the renewal quote on her own home more than doubled to $5,80 for this year.)

Another shot of the damage from Maui’s fires last year. AFP via Getty Images

More than 20% of pending homes sales fell through in September in places like Orlando, Fort Lauderdale, Dallas and San Antonio, according to Redfin. 

It’s not coincidental that those cities are in states — Florida and Texas — with some of the highest insurance costs, Daryl Fairweather, the brokerage’s chief economist, said.

If the burden is great on individual homeowners, there’s no relief to be found in condominiums, despite multiple owners sharing in the building’s rising insurance load. 

Cars were among the easiest targets for the massive hail balls from last year’s storm in Texas. Tribune News Service via Getty Images

One 200-unit waterfront condominium in Long Island saw its insurance premium more than double to $461,000 for this year, according to Orest Tomaselli, a president at lending advisory firm CondoTek. 

Those costs, which get passed on to residents through their homeowners’ association (HOA) fees, could easily translate into a doubling or tripling of monthly outlays for each apartment owner.

There’s added consequence if condo owners can’t afford to pay up – or simply don’t.

If more than 15% of a building’s owners are delinquent in their HOA payments, no unit at the property can qualify for a mortgage, Tomaselli said, citing lending rules by housing finance agencies like Fannie Mae.

And in the past year, delinquencies on condo association fees have become a serious problem, said Tomaselli, who helps condo boards comply with federal lending standards.

“Now all of a sudden, you’re seeing numbers of 12, 14, 20% of unit owners delinquent on their maintenance by more than 60 days,” Tomaselli said. 

Farmers Insurance Group boosted premiums in 43 states including a 25% bump in Texas Getty Images

Owners of income-producing property like hotels or apartments are feeling the pinch too, as they’re forking over a higher share of their rental income towards insurance premiums.

Insurance costs ate 2.3% of US commercial property income in September— more than double the number in September 2018, according to a report from  MSCI Real Assets.

For owners of Florida commercial properties, insurance costs have reached 4.4% of rental income, the highest of any state, up from 3.3% just one year earlier. 

This, in addition to high borrowing costs is “reshaping the calculus” of where investors seek to buy and build, said Bryan Reid, MSCI’s director of research in a blog post.

A scene from the earthly carnage following a wildfire in California in 2021. AFP via Getty Images

“For the first time in my career, I’ve seen insurance costs kill some deals,” said Joe Hernandez, a partner in the real estate practice at Miami law firm Bilzin Sumberg.

And this is derailing purchases of multifamily properties – a popular South Florida investment for developers looking to improve older properties in the face of insatiable demand for housing.

Florida, for instance, requires an estimated 500,000 new homes by 2030 to meet demand just as insurance has never been pricier and harder to secure.

 Amid the relentless insurance hikes and state-wide retrenchments, consumer groups have begun to push back.

As they see it, states are obliged to play a larger role in keeping citizens insured at reasonable rates. 

“You can’t have a functioning housing market without insurance,“ said Jonathan Miller, president of real estate appraiser Miller Samuel Inc. Miller Samuel Inc

That includes everything from forcing insurer transparency on what goes into their rate hikes, to making hard calls about limiting development in fire or flood prone areas, said Carmen Balber, executive director of California-based Consumer Watchdog.

Other state initiatives include a Louisiana program to help residents hurricane-proof their roofs, lessening the potential for losses.  

And Colorado recently created a publicly backed insurer of last resort for those who can’t find coverage elsewhere.

“It’s just not fair to consumers who have paid into their policies for decades to bear the full brunt of cost increases because of climate change,”  Balber said.

After all, she continues, “we expect [insurance policies] to be there when we finally need them — that’s the point of insurance.” 

Oshrat Carmiel is the publisher of Highest & Best, a newsletter on South Florida real estate and wealth migration, and a former real estate reporter for Bloomberg News.

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