Things are getting hot—for the planet, for insurers, for homeowners, and for individuals purchasing a home. As the temperature rises globally, bringing with it new and unpredictable weather patterns and natural disasters, homeowners are facing a myriad of decisions that previous generations simply didn’t think about. For example, should they move to coastal areas, given the increasing likelihood of flooding and intense storms? Meanwhile, once idyllic sites in wooded areas are now at higher risk of wildfires. The decision of where, and indeed if, to buy a home these days is also increasingly shaped by climbing insurance rates.
The 2023 Policygenius Home Insurance Pricing Report, based on internal policyholder data from over 17,401 policy renewals from May 2022 to May 2023, found that 94% of homeowners were quoted a higher premium at renewal, compared to 91% of 10,283 renewals from May 2021 to May 2022, and that the average increase was 21%.
Home insurance prices are about 35% higher nationally compared to two years ago, with several wildfire and tornado-prone states accounting for the largest average increases. Based on an analysis of 27,156 home insurance policy renewals with Policygenius between May 2021 and May 2023, insurance premiums increased by an average of 68% in Florida, 47% in New Mexico, and 46% in Colorado, Idaho, and Texas.
What’s Driving the Increases?
Climate change is driving increases on a macro scale, but it’s more accurate to say what’s really driving prices are insurance losses. In 2023, insurers lost money on homeowners’ coverage in 18 states, according to a New York Times analysis. That’s up from 12 states five years ago, and eight states in 2013. The result is that insurance companies are raising premiums by as much as 50% or more, cutting back on coverage or leaving entire states altogether. Nationally, over the last decade, insurers paid out more in claims than they received in premiums, according to the ratings firm Moody’s, and those losses are increasing.
Complicating the matter for homeowners is that insurers are leaving major markets, finding them unhealthy for profits. In May 2023, for example, State Farm stopped accepting new applications for California policies. Allstate announced in November 2022 that it would pause new home, condo, and commercial policies in the state as well. Insurance companies “are not in the business of giving you money just because you need it, and they are not in the business of doing the right thing just because it feels like the right thing,” says Kenneth Klein, a professor at California Western School of Law, in an interview with CNBC. “They are businesses that are trying within a set of laws and regulations to make a profit.”
The Impact on Homeownership
Fewer and pricier insurance options have been a significant barrier to homeownership, as most mortgages require insurance. The growing tumult is affecting people whose homes have never been damaged and who have paid their premiums on time, year after year. Cancellation notices have left them scrambling to find coverage to protect what is often their single biggest investment. Many are ending up in high-risk insurance pools created by states that are backed by the public and offer less coverage than standard policies.
One such state is Florida, where so many homeowners have flooded into a state-backed, high-risk pool that it is now the state’s largest insurer. According to a survey by Redfin, nearly 12% of homeowners in the state who plan to move in the next year said they were doing so because of climbing insurance costs, compared to 6.2% of homeowners nationwide. About 12% of Florida homeowners who have faced insurance changes said they have been dropped by their insurance company, compared to the national average of 8.3%. And according to research from the Insurance Information Institute, about one in every seven homeowners in the state is choosing to go without property insurance.
Homeowners in wildfire-prone areas of California are also facing difficulties related to home insurance. The combination of rate increases, non-renewals, and plan cancellations is pushing many California homeowners to the state’s FAIR Plan, a state-created private association as a last-resort insurer for those being denied plans. The California FAIR Plan was established in 1968 to provide an insurance option for those who are unable to procure insurance through the traditional market. However, what was established as a temporary solution has now become the only solution for many. Since 2019, the California FAIR Plan has seen a 164% increase in policies, with a 27% jump just this past year.
How Can Mobility Professionals Help?
For current and potential homeowners, as well as relocation professionals, navigating this complex and rapidly changing insurance landscape is essential. Talent mobility experts can play a key role by providing guidance on how to manage insurance costs and secure better coverage for relocating employees.
When giving the mobile employee guidance, there are a few options talent mobility professionals can help transferees explore. Michelle Mara, CRP, GMS-T®, vice president of mobility strategy at Graebel, and her team offer these tips to help manage rising home insurance costs:
- Increase your deductible: By opting for a higher deductible, you can reduce your premium. Just make sure you can afford the deductible in case of a claim.
- Bundle policies: If you have other insurance policies (such as auto or life insurance), consider bundling them with your home insurance. Many insurers offer discounts for bundling.
- Improve home security: Installing security systems, smoke detectors, and deadbolt locks can make your home safer and potentially lower your premium.
- Maintain good credit: Insurers often use credit scores to determine rates. Improving your credit can positively impact your premium.
- Shop around: Don’t settle for the first quote you receive. Compare rates from different insurers to find the best deal.
- Ask about discounts: Inquire about available discounts, including loyalty discounts.
Navigating this new reality requires careful planning and informed choices. For mobility professionals and homeowners alike, understanding the intricacies of insurance and proactively seeking solutions is more crucial than ever. By taking steps such as those outlined above, homeowners can better manage costs. As homeownership challenges driven by climate change continue to unfold, staying informed and adaptable will be key to protecting what matters most.