What is causing the increase in homeowners insurance prices?


According to a recent report from the Insurance Research Council (IRC), homeowners' insurance is becoming increasingly unaffordable for many Americans due to the rising frequency and severity of natural disasters, as well as escalating home repair costs and other financial pressures.

The affordability was assessed by the IRC through comparing the average homeowners' insurance expenses to the median household income. As of 2020, the ratio was 1.93%, indicating that, typically, US households allocated close to 2% of their income to homeowners’ insurance.

Utah was ranked as the most affordable state in terms of homeowners' insurance costs in 2020, with households spending only 0.92% of their annual income on it.

 States with low expenditure-to-income ratios also included Oregon, Wisconsin, Washington, and New Hampshire.On the other hand, Louisiana ranked as the least affordable state with a ratio of 3.84%, with Florida, Oklahoma, Mississippi, and Alabama following closely behind.

The affordability crisis of homeowners' insurance in America

The affordability of homeowners is closely connected to different cost factors that vary from state to state, as stated in the IRC report. Factors to consider are the number and average amount of claims paid by insurers, exposure to weather and natural hazard risks, as well as coverage for perils such as theft and vandalism.

Insurers face additional pressures due to expenses related to processing, investigating, and litigating claims, as well as the percentage of homeowner’s claims involving litigation.

During the last twenty years, changes in these cost factors have resulted in a widespread reduction in the affordability of homeowners insurance. 

The average premiums have increased more than personal income growth, with the expenditure share of income rising from an average of 1.54% in the 2000s to 1.99% in the 2010s.In states such as California, the decrease in affordability has led to availability crises, with some insurers addressing the challenges by decreasing exposure or completely exiting certain markets.

Discussing these findings, IRC president Dale Porfilio highlighted the significance of analysing the cost drivers to enhance both affordability and availability.

"By examining what is driving up the cost of claims, insurers and policymakers can identify opportunities for improving both the affordability and availability of homeowners insurance nationwide," stated Porfilio. "Insurers need to be able to price their policies to accurately reflect the risks they are taking on."


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