Home insurance soaring in high-risk zones

Uninsured property accounts for 7.4% of all properties in the nation.

It's not just flood damage that could destroy a property. Think of wildfires.

The insurance problem is more acute in California, Louisiana and especially Florida.

Since 2017, about a dozen home insurers in Florida have closed up shop or stopped selling new home-insurance policies. Farmers pulled out of the state in July, joining Bankers Insurance, Lexington Insurance (a subsidiary of AIG), and United Property & Casualty in withdrawing from the market last year. Progressive has eliminated coverage of properties not occupied by the owner. Although AAA continues to write new policies in Florida, it is doing so only in those portions of the state it deems to be at lower risk.

In short, insurance companies don't want to put themselves at risk of going bankrupt from massive payouts over storm damage

Affordable rates in the state from private insurers have become scarce or have vanished entirely.

Remember, ordinary homeowner insurance policies do not cover flood damage. Such coverage must be purchased at a much higher cost, or from a separate entity.

Florida residents can turn to a state public entity called Citizens Property Insurance Corporation.

This state agency doesn't face any prospect of bankruptcy. If hurricane winds destroy too many homes covered by its policies, leading Citizens to face bigger bills than it can afford to pay, it won't go belly-up. Instead, something called an "assessment" occurs whereby state law mandates Citizens imposes fees on private insurance policies across the state in order to cover its payouts. Not just fees on home insurance policies, but also on, say, car insurance policies.

Frankly, the costs of insuring coastal areas against catastrophes has gotten too massive for insurance companies to stomach the risk. Whether the government should be filling the void is a debatable matter. Maybe it would be better not to insure the coastal areas so that when disaster strikes the owners won't simply rebuild on the same disaster-prone spots.

Floridians on average are paying about $6,000 for their yearly home insurance premium, an increase of 42% compared with 2022.

Average premium costs nationwide is about $1,700.

Florida legislators last year passed a law requiring homeowners who get their insurance through Citizens — the insurer of last resort — to also enroll their homes in the federally run National Flood Insurance Program. This further increases the owner's costs.

I checked in with a homeowner in Tallahassee, Florida. She reports that her home insurance premium has gone from $615 a year as of 2016 to $2,185 for 2024. In other words, the premium has more than tripled in eight years.

Granted, a part of that increase is attributable to inflation. But the major part is due to increased risk factors.

We need to pay attention because soaring homeowner insurance affects everyone, not just homeowners. Tenants will face higher rents when the landlords pass along their increased insurance costs.

The soaring rates are somewhat coastal in nature; folks living far from the coast are more sheltered from the premium increases.

But any place prone to disaster — including Western states where wildfires seem more and more prevalent — is at risk of soaring homeowner premiums.

As extreme weather becomes more common and more severe, insurers are reassessing how much risk they want to take on.

It's possible that eventually only wealthy people (who can afford to rebuild and repair out of pocket) will be able to afford to remain in coastal areas, said Zac Taylor, a professor of geography with the Deift University of Technology in Norway.

If so, we are seeing the beginnings of coastal gentrification.