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Positive Developments in Looming Homeowners Insurance Crisis

October 12, 2023 (4 min read)

Remember that potentially looming homeowners insurance crisis we told you about back in July? There have been some developments.

As you might recall, there are growing fears that the United States may be on the brink of a home insurance crisis, at least in coastal areas.

State Farm and Allstate, two of the nation’s largest insurance companies, stopped selling property insurance to new customers in California. Meanwhile, American International Group or AIG said it would stop insuring homes along the Florida coastline, while Farmers stopped offering new property coverage in all of the sunshine state.

Yeah, that’s not good. What’s even worse is there hasn’t been much in the way of state legislation even introduced to address these concerns.

There have been some encouraging happenings recently that could ease the developing crisis, but the problem is far from over. In fact, it could still get worse before it gets better.

California Insurance Commissioner Steps In

In late September, California Insurance Commissioner Ricardo Lara announced a “a package of executive actions” to stabilize the Golden State’s property insurance market, which has been strained by the state’s devastating and costly wildfires and insurers’ reluctance to provide coverage for them.

Under Lara’s proposed regulations, major home insurers will be required to cover a certain amount of homeowners in areas of California where wildfires occur. But critically, in exchange, the California Department of Insurance will permit insurance companies to charge consumers more.

“We are at a major crossroads on insurance after multiple years of wildfires and storms intensified by the threat of climate change,” Lara said in a press release announcing the regulations. “I am taking immediate action to implement lasting changes that will make Californians safer through a stronger, sustainable insurance market. The current system is not working for all Californians, and we must change course. I will continue to partner with all those who want to work toward real solutions.”

Lara’s proposal is notable in part because it comes after the California Legislature was unable to work out any sort of deal to address the state’s property insurance problem before its session ended for the year in mid-September.

Homeowners Insurance Rates Up 35% Nationwide Since 2021

Between May 2021 and May 2023 homeowners insurance rates increased by an average of 35% nationally, according to the insurance price comparison website Policygenius. States with the highest premium increases over that two-year period, including Florida (68%) and Texas (46%), have suffered large natural disaster losses and market turmoil. 

New Companies Eying Entry into Florida Market

Florida is in a somewhat similar predicament.

The legislature there passed some bills this year to fix the state’s insurance issues, including measures to do away with one-way attorney fees and assignment-of-benefit agreements for claims.

But while these reforms have been called “major changes,” they’re still not perceived as being enough. Indeed, Republican State Rep. Danny Perez, set to become the Florida House of Representatives’ next speaker in 2025, recently said he wants to see lawmakers introduce more legislation on property insurance.

Perhaps more encouraging is the news that several companies new to Florida are interested in picking up hundreds of thousands of homeowners currently insured by Citizens Insurance, the state-backed insurer of last resort.

The companies’ interest could be an indication that private insurers haven’t written off Florida and in fact want more business there, which just a few months ago seemed like a virtual impossibility.

Rising Climate Risk Will Continue to Strain Insurance Markets

Will these developments be enough? It’s hard to say at this point.

The climate risks that have been driving up insurance premiums in—and driving insurers out of—coastal areas aren’t going away any time soon. A report from the non-profit First Street Foundation, which studies climate change, suggests those problems may just be beginning.

First Street estimates that over 39 million properties—almost a quarter of the total nationwide—“are in areas with high and similar climate risk from flood, wind, and wildfire to places where the insurance industry has already responded to high risk by requiring higher deductibles, raising rates, or withdrawing from the area.”

The report goes on to say: “This one quarter of all properties represents the current Insurance Bubble of properties likely overvalued due to the underpricing or subsidization of climate risk in their insurance products. While regions across the United States are largely impacted by different types of climate risk, the insurance issue faced by these areas is similar and almost no area of the country is left untouched.”

In short: There’s still a big problem that needs to be addressed.

—By SNCJ Correspondent BRIAN JOSEPH

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