Climate change? Inflation? Why Illinois home insurance rates are up 30% since 2015

As natural disasters become more extreme and more frequent due to climate change, some states are seeing higher home insurance rates, and Illinois is no exception.

While weather definitely plays a part, experts say other factors like inflation, state regulation and home replacement costs are also adding fuel to the fire. Looking ahead, insurance companies are striving to support building more resilient homes to prepare for the effects of global warming.

Since 2015, home insurance premiums in Illinois have gone up by 30%, said George Hosfield, senior director of home insurance for LexisNexis Risk Solutions. That's higher than the national average since 2015, which is roughly 21%.

"One of the hard things about pricing insurance for property is the volatility of it because of the weather," Hosfield said. "Generally, [companies] look at their past results to find what they expect the cost of insuring a home could be over time, over an average year. That's how they come up with your premium, but it's hard to come up with that average year when in some cases you're dealing with once-in-100-year type of catastrophic events."

Hosfield said Illinois' rate increases are in line with those in other Midwest states like Iowa and Kansas, which similarly experience serious thunderstorms and tornadoes. Recent data by the National Oceanic and Atmospheric Administration shows that more tornadoes – 115 total – touched down in Illinois during a recent 12-month span than in any other state.

"We have to look at what climate change is doing, and insurance companies have to plan for that, but they've also been paying out a lot in claims. The costs of repairing homes and automobiles and rebuilding property – those costs are increasing, and that's what's adding to the increase in the cost of insurance."

Lynne McChristian, director of the Office of Risk Management & Insurance Research at the University of Illinois at Urbana-Champaign

Insurance companies use a type of analysis called catastrophe modeling to predict what could happen to a home in the future, but that model becomes more complex with climate change in the mix.

"In a lot of cases now, when you hear a one-in-100-year flood or storm, that measurement is no longer really accurate," Hosfield said. "It is still an infrequent event, but it's more frequent than it used to be."

The long-term effects of climate change on the home insurance industry is yet to be seen. With some insurers like Allstate and State Farm already scaling back their home insurance businesses in California due to wildfires, Hosfield said there's likely to be a "reckoning at some point about what isn't insurable risk."

There is precedent of insurance providers pulling back coverage: In the 1960s, most private companies stopped insuring flooding, leading the federal government to create the National Flood Insurance Program in 1968.

"I think the good news is, before the issues hit, Illinois, Florida and California will hopefully figure this out," he said. "Individual state departments are going to have to decide what they will allow insurance companies to do in terms of not writing certain property and what they're allowed to charge. ... In order for that math to work, there's going to have to be a reckoning, both with what departments allow carriers to do and what consumers are willing to pay."

Hosfield added that insurers are taking steps to plan for sustainability through research and policy work.

"It's not like the industry is just standing back, waiting to try and raise rates," he said. "They are actually also trying to mitigate that risk to try to keep rates down by making houses more sustainable."

Robin Berliner Eisenstot, a Buffalo Grove homeowner of over 30 years, said she recently had her home insurance go up by about $600 at renewal despite never having filed a claim.

A customer of Farmers Insurance, Berliner Eisenstot's rate went from $2,200 to $2,800. Her agent told her insurance companies are pulling out of other states and taking huge hits, and the cost is being passed to their current customers.

"I understand passing [the cost] on to everybody, but this is the worst it's ever been, and I've owned a home for 35 or 36 years," she said.

The Buffalo Grove resident did some shopping around but couldn't find anything different in cost savings. She said she's hesitant to switch insurance providers because the cost could always rise again at renewal.

"I've had friends that have gone to a different insurance company, and they lowball it for that year, but then the next year, they raise it so you're kind of right back where you started from," she said. "You're in a Catch-22. If I move, what's it gonna be the following year?"

Farmers Insurance did not respond to a request for comment.

Lynne McChristian, director of the Office of Risk Management & Insurance Research at the University of Illinois at Urbana-Champaign, said Illinois insurance prices are affected by what happens in our state only.

That means the hurricanes in Florida, wildfires in California and drought across Texas are not factored into what we pay for insurance in our state. Rather, McChristian said our rates are being affected by inflation, supply chain issues and even reinsurance, which is insurance for insurance companies.

"Those prices are globally based and have risen due to rising natural disaster losses," McChristian said in an email. "But in Illinois, we would pay a prorated share of those rising costs, one that reflects the risk trends and cost of claims in this state only. Policyholders in Illinois are not subsidizing the cost of insurance for people in other states."

McChristian added that rising home replacement costs are another large share of why rates are going up.

"We have to look at what climate change is doing, and insurance companies have to plan for that, but they've also been paying out a lot in claims," she said. "The costs of repairing homes and automobiles and rebuilding property – those costs are increasing, and that's what's adding to the increase in the cost of insurance. We can't say climate change is causing the prices to go up, but insurance is going up because of the other costs associated with helping people get back to the pre-loss condition."

Jenny Whidden is a climate change and environment writer working with the Daily Herald through a partnership with Report For America supported by The Nature Conservancy. To help support her work with a tax-deductible donation, see dailyherald.com/rfa.