Personal Finance
Home insurance premiums rose 21% in 2023, partly due to climate change
A view of flooded streets after 24 hours of continuous heavy rain over Fort Myers, Florida, United States on June 13, 2024.
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Consumers preparing to renew their homeowners insurance policy may experience some unexpected sticker shock.
Between May 2022 and May 2023, home insurance prices rose an average of 21% at renewal time, according to Policygenius.
A rise in catastrophic severe weather events contributed to this jump, experts say, and the rate of price increases is not expected to slow. As insurers face higher costs, they pass those along to consumers in the form of pricier premiums.
However, insurers don’t share data on individual homeowners’ premiums and risks, so it’s difficult to calculate just how climate risk is factored into the price of policies.
“The levels of risk and the kinds of hazards that a property can be exposed to are massively changing,” said Carlos Martín, director of the Remodeling Futures program at the Joint Center for Housing Studies of Harvard University.
“And right now there’s a lot of confusion, not just among the homeowners, but also among the insurers about how they should be pricing this actuarially,” he said.
‘Minimal’ data available from insurers
Though home insurance premiums jumped significantly in price last year, it isn’t a new phenomenon. To that point, between 2012 and 2021 the average premium rose from $1,034 to $1,411, according to the Insurance Information Institute.
Some of the annual increases within that stretch of time were bigger than others, according to Kenneth Klein, a professor at California Western School of Law, adding that climate change creates the potential of economic “fat-tailed losses,” because storm damage isn’t spread evenly across all insured properties or evenly over time.
“For many insurance companies in the Gulf Coast area, if they economically survived Katrina, the next year was one of their most profitable years,” he said. “Because their premiums adjusted for Katrina, but there wasn’t a Katrina event. So that’s the challenge of insuring climate change.”
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Understanding how premiums will continue to rise in response to severe weather is hard to gauge, according to Martín.
“The data is pretty minimal,” Martín said. “Insurers don’t share how much they’re charging individual homeowners with the world, and there’s not a lot of reporting.”
Scott Shapiro, KPMG U.S. insurance sector leader, said the industry does gather this data on weather-related losses to inform policy premiums, but the detailed data isn’t publicly accessible.
“This data is crucial for rate making and filings,” Shapiro said. “A key challenge is the increasing exposure to weather-related risks and the uncertainty of whether historical losses accurately predict future losses.”
Insurers are pulling back in high-risk areas
The cost of home insurance might be rising, but for some in areas at risk of flood or fire, homeowners may have few options.
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.
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,” Klein said. “They are businesses that are trying within a set of laws and regulations to make a profit.”
Fewer and pricier insurance options can prove to be a significant barrier to homeownership, experts say, as most mortgages require insurance.
Florida’s legislature created Citizens’ Property Insurance in 2002 as an option for Floridians who couldn’t find home insurance in the private market. California’s FAIR plan was established as a statute in the state’s insurance code to provide fire coverage unavailable in the traditional market, though it’s not a state or public agency.
Though state-run programs might serve as a last resort, they don’t always provide the same quality of coverage that a private insurer might offer.
“They sometimes are not built on the same actuarial principles as private insurance company would build them,” Klein said. “And as a consequence, it’s problematic. It’s often not good coverage.”
Those feeling the pain of rising premiums the most are existing homeowners, Martín said.
“They’re feeling it, because they see what they’re paying when they first bought the house, and now they see what they’re paying,” he said. “And it’s increasing.”
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The U.S. job market has undergone a dramatic transformation in recent years, from one characterized by record levels of employee turnover to one in which there is little churn.
In short, the “great resignation” of 2021 and 2022 has morphed into what some labor economists call the “great stay,” a job market with low levels of hiring, quits and layoffs.
“The turbulence of the pandemic-era labor market is increasingly in the rearview mirror,” said Julia Pollak, chief economist at ZipRecruiter.
How the job market has changed
Employers clamored to hire as the U.S. economy reopened from its Covid-fueled lull. Job openings rose to historic levels, unemployment fell to its lowest point since the late 1960s and wages grew at their fastest pace in decades as businesses competed for talent.
More than 50 million workers quit their jobs in 2022, breaking a record set just the year prior, attracted by better and ample job opportunities elsewhere.
The labor market has gradually cooled, however.
The quits rate is “below what it was prior to the start of the pandemic, after reaching a feverish peak in 2022,” said Allison Shrivastava, an economist at job site Indeed.
Hiring has slowed to its lowest rate since 2013, excluding the early days of the pandemic. Yet, layoffs are still low by historical standards.
This dynamic — more people stay in their jobs amid low layoffs and unemployment — “point to employers holding on to their workforce along with more employees staying in their current jobs,” Shrivastava said.
Big causes for the great stay
Employer “scarring” is a primary driver of the so-called great stay, ZipRecruiter’s Pollak said.
Businesses are loath to lay off workers now after struggling to hire and retain workers just a few years ago.
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But job openings have declined, reducing the number of quits, which is a barometer of worker confidence in being able to find a new gig. This dynamic is largely due to another factor: the U.S. Federal Reserve’s campaign between early 2022 and mid-2023 to raise interest rates to tame high inflation, Pollak said.
It became more expensive to borrow, leading businesses to pull back on expansion and new ventures, and in turn, reduce hiring, she said. The Fed started cutting interest rates in September, but signaled after its latest rate cut on Wednesday that it would move slower to reduce rates than previously forecast.
Overall, dynamics suggest a “stabilizing labor market, though one still shaped by the lessons of recent shocks,” said Indeed’s Shrivastava.
The great stay means Americans with a job have “unprecedented job security,” Pollak said.
But those looking for a job — including new college graduates and workers dissatisfied with their current role — will likely have a tough time finding a gig, Pollak said. She recommends they widen their search and perhaps try to learn new skills.
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