Home Insurers Are Leaving States and Hiking Prices — Here's How to Cope
As if high mortgage rates and low housing inventory aren’t enough, there’s another factor making homeownership more expensive and complicated in some parts of the U.S. — securing and maintaining home insurance.
Many homeowners are struggling to find affordable coverage as insurance companies triple rates, drop customers or leave certain states altogether. While all eyes are on states where this crisis is causing the most havoc — Florida and California, where insurance costs are soaring due to increased risks of flooding and wildfires, respectively — these problems may become more widespread.
“Though premiums and pullouts are beginning within the states most vulnerable to climate disasters, without an internal reckoning in the insurance industry, rates will escalate to unaffordability for most consumers,” says Franklin Manchester, Principal Global Insurance Advisor at SAS, an artificial intelligence, analytics and data management company.
Farmers recently dropped almost a third of its homeowners insurance customers in Florida and said it would limit new policies in California. Allstate stopped offering new policies in California, and State Farm stopped selling coverage there as well.
Homeowners outside of California and Florida are facing challenges getting affordable home insurance too. After some condos in Louisville, Colorado, were damaged during a wildfire, the insurance company dropped the property. Replacement coverage was 700% more expensive than the original policy.
The Reilly Center for Media & Public Affairs at Louisiana State University surveyed home insurance policyholders in the state. Almost a fifth of homeowners surveyed claimed their insurer canceled their plan and more than half had trouble securing another policy.
The increasing rates may seem like a case of corporate greed, but the reality is many carriers can’t afford to pay claims in states with constant weather disasters. Supply chain disruptions and increasing labor and material costs have also made it even more expensive for insurers when they have to pay out claims.
According to Melissa Cantway, the owner of Century 21 Realty Professionals in Boynton Beach, Florida, major carriers are leaving because they’re insolvent. That means they don’t have enough money to pay claims resulting from catastrophic storms. In 2022 alone, the United States had 18 weather disasters with damages exceeding $1 billion, for a total of $165 billion, according to the National Oceanic and Atmospheric Administration (NOAA).
When home insurance prices soar or your policy is canceled
While the insurance options for homeowners in many states are shrinking, all hope isn’t lost. For those facing a letter of nonrenewal or a huge premium increase, here are some tips to consider:
Make home repairs
If you receive a nonrenewal because your home doesn’t meet the updated stricter insurance requirements, make the necessary improvements if possible. This isn’t always an option because some insurers are not renewing homes over a certain age, which is the case for certain homeowners whose houses were built before 1970 in California’s Bay Area.
However, if your insurer says you need to replace a roof or make other changes, it might be a costly but manageable way to maintain coverage.
Increase your insurance deductible
A higher insurance deductible equals a lower home insurance premium, so consider increasing your deductible for more affordable coverage.
According to some estimates, your premium can vary by up to 40% depending on your deductible. Depending on your policy, you may be able to save hundreds or even over $1,000 each year by raising your deductible from, say, $500 to $1,000.
“Take deductibles that are close to or higher than your monthly mortgage payment rather than trading dollars with insurers on small claims,” advises Bill Martin, President and CEO of Plymouth Rock Assurance.
In many cases, it’s best to pay smaller damages (costing under $500 or $750) that occur to your home out of pocket instead of filing a claim. Reserve your homeowners insurance for significant damages instead. Doing so will keep your rates lower and decrease the number of claims you file. Remember that insurers tend to increase your premiums each time you file a claim, so only do so when needed.
Don’t allow home insurance to lapse
While it may be challenging to come up with the money to pay for homeowners insurance year after year, allowing your coverage to lapse will be even more costly in the long run.
Cantway explains that if your insurance lapses, your home lender may secure coverage for you and include the premium in your mortgage payment. This is known as “force-placed insurance" and will likely be more expensive than going through a traditional plan. On average, a force-placed insurance policy costs four to 10 times more.
Failure to pay your homeowners insurance in this scenario can also trigger foreclosure on your property because the premium is now part of your mortgage. This makes the potential consequences far more significant. Your best option is to find good coverage you can afford instead of going without insurance. Speaking of which ...
Shop around for cheaper insurance
Shopping around to find the best rate on homeowners insurance is a good practice for everyone to engage in periodically. But browsing for a new homeowners policy is imperative if you receive an unaffordable rate increase or notice of nonrenewal.
Marty Ellingsworth, executive managing director of P&C Insurance Intelligence at J.D. Power, explains that working with “a local independent [insurance] agent would be a natural way to find out who is in the market where you live.”
That way, he says, “You can learn more about your area’s perils as well as how others are attaining coverage and at what pricing options.”
When you shop around for new policies, get rates from at least three to five insurance companies. Be sure to look at similar coverage and deductibles, so you’re comparing apples to apples. Also, consider looking at your auto insurance company. In most cases, you can bundle your home and auto insurance with the same company to get a discount on your premiums.
Join a FAIR plan
Getting insurance through a FAIR plan, also known as the shared market, is a last resort for homeowners. FAIR, which stands for Fair Access to Insurance Requirements, plans are state-mandated policies that provide property insurance to those who can’t get standard coverage.
One primary difference between this type of insurance and traditional coverage is that, in most cases, multiple insurance companies cover your property — hence being part of a shared market. This model allows insurers to share the risk and financial liability if you file a claim.
Thirty-three states and Washington, D.C., offer a FAIR Plan. These plans are not available in Alaska, Arizona, Arkansas, Colorado, Idaho, Maine, Montana, Nebraska, Nevada, New Hampshire, North Dakota, Oklahoma, South Dakota, Tennessee, Utah, Vermont and Wyoming.
Joining a FAIR plan is typically a last resort due to limited coverage options and more expensive premiums on average. Plans usually include dwelling coverage for named perils, including fire, lighting and smoke, but you often can’t get liability, loss of use or medical payments coverage.
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