--The main culprits are fraud and lawsuits, rapid inflation for building costs and a surge in extreme weather.
Across the country, homeowners are facing heavier financial burdens when it comes to securing the coverage they need to protect their property and belongings. Rising homeowners insurance rates are making budgets tighter for millions of American households. And in certain parts of the U.S., the situation is rapidly approaching crisis mode (if it’s not already there).
In recent weeks, hundreds of thousands of policy holders in Florida and California were left scrambling to find new insurance coverage due to insurance providers pulling out of both states. Farmers Insurance is the most recent insurer to stop offering coverage in Florida, joining dozens of others. Meanwhile, State Farm decided to stop writing new homeowners policies in California — at least for the time being. Louisiana has lost at least 20 insurance companies in recent months due to either insolvency or withdrawal.
There are many factors contributing to the exodus of insurance companies. Here, we break down some of the top reasons consumers are facing rate increases and difficulty getting coverage.
Insurance fraud and lawsuits
One reason insurance rates are rising is the ever-increasing likeliihood of fraud. According to the Coalition Against Insurance Fraud, the insurance industry suffered more than $300 billion in losses as a result of fraud in 2022.
Insurance fraud in Florida, in particular, grew rampant at the hands of roof replacement scam artists over the past few years. In many cases, these roof replacement schemes escalated to lawsuits, which resulted in even higher losses.
According to a study by the Insurance Information Institute (III), 79% of home insurance lawsuits in the U.S. originate in Florida, despite insurers in the state only receiving 9% of the country’s insurance claims. The combination, along with other factors, has pushed the insurance market in the Sunshine State to the verge of collapse.
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Insurance providers have also felt the sting of inflation for materials and labor. According to a survey by the National Association of Home Builders, average construction costs for a typical single-family home in 2022 were around $153 per square foot, a surge from $114 in 2019.
Of course, you can’t discuss the home insurance crisis without examining the impact of extreme weather and natural disasters. Wildfires, hurricanes, winter storms and other types of severe storms can devastate homeowners and result in enormous financial losses for insurance companies.
According to the National Centers for Environmental Information, the U.S. has experienced 90 billion-dollar, weather-related disasters between 2018 and 2022 — an average of 18 per year. By comparison, in the 2010s, there were an average of 13 events per year, and just seven per year from 2000 to 2009.
The bottom line
No single event is sending the home insurance industry into crisis. Instead, a combination of factors are putting homeowners insurance providers under extreme financial pressure, especially in certain parts of the country. And as insurers become insolvent or opt to pull out of certain states, it’s ultimately the homeowners in those regions who pay the price.