Homeowners insurance sector slammed by climate impacts

Homeowners insurance sector slammed by climate impacts | Insurance Business America

Some areas “marching toward an uninsurable future”

Catastrophe & Flood

Ryan Smith

Insurers’ profit margins are being rocked by climate change, with losses extending beyond disaster-prone coastal states like California and Florida and into the interior of the country.

Homeowners insurance was unprofitable in 18 states last year, according to a study by The New York Times. That’s up from eight states in 2013.

Most of the unprofitable states were in interior regions of the country. Those in the Midwest faced severe storms and hail, while many western states dealt with wildfires, the Times reported. Insurers have tried to mitigate the impact on profits by restricting coverage, dropping customers and even withdrawing from some states entirely.

Insurers have also hiked rates considerably. Home insurance rates spiked by nearly 20% between 2021 and 2023, and online marketplace Insurify predicts a further 6% rise this year.

Carolyn Kousky, associate vice president for economics and policy at the Environmental Defense Fund, said that the insurance sector’s climate-related woes would have a knock-on effect throughout the rest of the economy.

“Insurance is where many people are feeling the economic impacts of climate change first,” she told the Times. “That is going to spill over into housing markets, mortgage markets, and local economies.”

As severe storms and other climate-related disasters become more frequent, insurers are spending more to repair damaged homes, the Times reported. Growing losses will likely push insurers to abandon even more markets, according to former California insurance commissioner Dave Jones.

“I believe we’re marching toward an uninsurable future” in many places, Jones told the Times.

But now, previously minor threats like hail, wildfires and windstorms have become more frequent and severe. The growing danger has also threatened insurers’ bottom lines, and the industry is responding, in large part, by retreating.

In Iowa, for instance, a number of insurers have stopped writing homeowners coverage and dropped thousands of customers. Insurance agents told the Times that it’s getting more difficult to find carriers who will write new business in the state.

The same issue has cropped up across the Midwest and Southeast, as well as parts of the West, the Times reported. Insurers have also hiked rates by 50% or more in some areas.

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