Inside America's Homeowners Insurance Crisis

Inflation and more frequent natural disasters are pushing up the cost of home insurance in the United States, adding another burden for homeowners at a time of record mortgage rates and high house prices.

Across the country, Americans are noticing a spike in homeownership insurance premiums, with states seeing a rise in natural disasters, such as California, Florida and South Carolina, feeling the pinch the most.

More than 60 percent of Americans say that their home insurance premiums got more expensive over the last year, according to a Harris poll survey via NerdWallet from July. These soaring costs are discouraging potential buyers from purchasing homes, the survey showed.

Elevated inflation has made the cost of building more expensive, and unpredictable weather changes are costing insurance companies more, which, in turn, are forced to hike their rates.

"In the first half of 2023, homeowners and commercial property claims costs increased by 36% and 30% respectively [year-on-year], driven up by inflation and natural catastrophe losses," according to the insurance giant Swiss Re.

Homeowners loss was highest in over a decade, the company said. "Partly as a result, insurers are restricting business in catastrophe-prone markets," Swiss Re added.

Swiss Re points out that in California, one of the world's largest economies, insurance companies are pulling back, limiting the options available for homeowners. Worryingly, homeowners are also choosing to go without insurance: only about 88 percent are insured today, compared with up to 95 percent a few years ago, Swiss Re said.

"There is an estimated 20% less availability for insurance options than a year ago," the company said.

Homeownership Insurance Premiums Skyrocketing

In some cases, states like Florida, where hurricanes are a fixture of life, the rising cost of insurance is part of the reason residents are considering relocating to other parts of the country. Those who choose to stay are contemplating going without insurance—a risky choice should catastrophe hit.

Florida isn't the only state that has grappled with the cost of skyrocketing homeowners insurance. Texas, the second largest state in the country, is seeing increased natural disasters and experienced the second highest home insurance premiums hike in the U.S., according to insurance firm Matic.

In the first half of 2023, premiums in Texas went up by an average of over 15 percent compared to last year, pushing up costs to more than $2,100 per year, Matic said. In 2020, the cost for homeowners in the Lone Star state was about $1,600.

South Carolina also saw a jump in home insurance premiums, Matic showed, with a 17 percent hike to $1,600 for homeowners.

"South Carolina experienced the highest year-over-year premium rate hikes in the country," Matic said. "Overall in the US, home insurance premiums have reached an unprecedented record high, averaging a nearly 9% increase during the first half of 2023 compared to the previous year."

The cost for companies has forced high-profile providers to close shop in some states. Earlier this year, State Farm said it would cease to accept new applications for homeowners in California.

"State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market," the company said in a statement.

Allstate similarly stopped issuing homeowners insurance in California. Farmers Insurance exited Florida last year, joining Bankers Insurance, Centauri Insurance, and Lexington Insurance.

"It left 100,000 Florida residents looking for new coverage," Democratic Senator Sherrod Brown of Ohio said at a hearing in September. "Days later, AAA announced that it would not renew some 'high exposure' policies in the state," he added.

For prospective home buyers, high prices and mortgage rates of 8 percent, a more than two-decade high, are not the only discouraging trends they have to deal with. They now also have to grapple with high premiums for insurance, as well.

"The current insurance market is causing significant challenges for mortgage lenders and homebuyers, affecting the loan closing process due to product availability and pricing," Matic said.

There are some options for homeowners, according to the Consumer Financial Protection Bureau (CFPB). In a note in August, the government agency advised Americans to explore in-state Fair Access to Insurance Requirements (FAIR) plans.

"FAIR plans offer coverage even in areas where insurance companies have decided not to sell policies," CFPB said. "Through FAIR plans, everyone can have a basic level of protection from catastrophes. However, it typically costs more than a standard policy."

The homeowners insurance crisis has raised alarms in Congress. During the Senate Banking Committee hearing on the issue in September, Brown said: "Homeowners who have spent years making their payments are shocked to find that their insurer has raised costs, limited coverage, or won't renew their policy at all."

His colleague, Republican Senator Tim Scott of South Carolina, another hard-hit state, said it was an issue to focus on.

"Whether it's California or Florida, we need to understand holistically the challenges that these insurance companies face and why they continue to pull out [of] the markets," he said. "Without any question, homeowners today are desperately looking for opportunities to afford the coverage."