Natural Disasters and Property Insurance: Get Ready for Rising Premiums
Homeowners in disaster-prone states must be prepared for increasing costs. Insurance providers in disaster-prone areas have been hit hard in recent years. In 2023, they paid an estimated $108 billion in global natural disaster claims. Premiums are increasing, and some people are being dropped from their insurance policies.
We want you to feel as prepared as possible for any cost hikes. Our team is here to help you navigate all of life’s unpredictable events.
6 Steps to prepare for higher property insurance premiums
1. Ballpark what your new premium might be
All insurance rates are regulated at the state level, meaning every state handles them differently. If your state governing body approves an increase in insurance rates, there’s, unfortunately, not much you can do to stop your premium from increasing. If natural disasters have heavily impacted your area, research if your current provider is proposing a rate change. This will help you determine how much you’ll need to budget for and save.
Premium increases aren’t a new phenomenon. Prices have been on the rise for the past decade. The National Association of Insurance Commissioners cited an average increase of 3.3 percent nationwide between 2017 and 2018. According to Insurify’s projections, increases will continue through 2024, as high as 23 percent in states with severe weather.
States with the highest home insurance costs often face significant weather-related risks. Florida, Louisiana, Texas, Arkansas, and Mississippi are particularly vulnerable to hurricanes. Texas, Colorado, and Nebraska are experiencing an increasing threat of wildfires. Meanwhile, Nebraska, Texas, and Kansas sit in Tornado Alley, where tornado activity is incredibly high.
2. Shop around for a new provider
If you have a choice of insurance providers in your area, switching to a new policy is likely where you’ll see the most significant savings. An insurance broker can help you navigate your options, but it’s also something you can research on your own. Start by asking your neighbors who cover their home and property, then call to request a quote.
3. Invest in the right home improvements
Your insurance agent will know if there are updates you can make to help your home withstand future natural disasters and simultaneously lower your premium payments. Things like storm shutters, reinforced roofing, sprinkler systems, sump pumps, and leak sensors can shave off dollars while also helping to protect you, your family, and your possessions.
Also, double-check if there are things you can do on your surrounding property. In arid areas, for example, FEMA recommends a 30-foot safety zone around your house (and a secondary zone of up to 100 feet) to act as a moat for wildfires.
4. Double-check what you’re paying for
Keep a close watch on your contract’s fine print. As insurers get more desperate, it’s not uncommon for them to slip in language around what is and is not covered by a policy. For example, damage from “named storms” may not be covered unless you pony up for an additional rider.
5. Consider increasing your deductible
Deductibles get complicated when natural disasters come into play. Many policies will have a separate deductible for earthquakes if you’re in California or tornado damage for Oklahomans. Generally speaking, though, the higher your deductible, the lower your premium. The Insurance Information Institute calculates saving as much as 25 percent on premiums if you increase your deductible from $500 to $1000.
6. Know your back-up provider if you get dropped from your policy
Some states make it easier than others for insurers to pass their costs through to policyholders via maneuvers like increased premiums. For states that don’t (like California), it’s unfortunately not uncommon to see non-renewals and policy cancellations in high-risk communities.
If a policy through private insurance isn’t possible, you’ll probably have to turn to a state-sponsored program. The good news is that you’ll have insurance. The bad news is that these plans cost even more than private insurance.
Thirty-three states and the District of Columbia have a version of a Fair Access to Insurance Requirements (FAIR) Plan, which is typically tailored to meet the needs of that state. California covers brush fires, for example, while New York covers wind and hail in specific communities. Several coastal states also offer a counterpart to FAIR Plans called Beach and Windstorm Plans.
To learn more about your state’s sponsored plans, call your insurance office or contact a local insurance broker.
Why did insurance premiums increase so much?
Short answer: climate change. Rising temperatures are creating more powerful storms in coastal areas and sparking more intense wildfires across the West and Southwest. Costs to insure and rebuild are skyrocketing.
The AXA Future Risks Report 2024 found that insurers’ top concern is climate change. As the landscape becomes riskier, insurers are scrambling. Two states have been in the headlines frequently, which helps showcase why premiums are ratcheting up so quickly.
Florida’s price jumps
Florida’s history of high premiums stems from a lack of options. Most major insurance companies don’t even offer coverage because weather events make it too risky. The smaller providers that do are grappling with huge reinsurance costs, losses from past hurricane seasons, and other issues, which they then pass through to their policyholders in the form of price jumps.
Florida residents without access to private insurers (or don’t want to pay an extreme price tag) are left with the state’s Citizens FAIR Plan, the so-called “last resort,” which has accrued half a million policyholders. FAIR plans are traditionally more expensive than private insurers, contributing to the statewide sticker shock many Floridians are facing.
California’s policy on non-renewals and cancellations
We mentioned that California makes it more challenging for insurers to increase premium pricing, which can result in an uptick in policy cancellations for homeowners in areas threatened by forest fires.
Instead of a statewide approach, California enforces targeted one-year moratoriums in areas impacted by recent wildfires. These moratoriums, issued by the California Insurance Commissioner, apply to residents living within or near the designated wildfire zones. For instance, in September 2024, Insurance Commissioner Ricardo Lara announced a mandatory one-year moratorium protecting roughly 750,000 policyholders affected by the Airport, Bridge, and Line fires in Southern California. It’s a practical solution, but temporary: this moratorium will only last one year. Extensions are possible, but the local and state governments are still figuring out viable long-term solutions that work for property owners and insurance carriers.
Want some help navigating how your property insurance fits into your real estate planning? Reach out to our team today.
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