US Home Insurers’ Losses Surge as Populations Grow in Disaster-Prone Areas

A fallen uprooted tree rests against a house in the Third Ward neighborhood in Houston, Texas, on July 12, 2024. (Brandon Bell/Getty Images)

American home insurers faced massive losses last year due to population growth in disaster-prone regions and other factors, according to global credit rating agency AM Best.

The home insurance segment “suffered a $15.2 billion underwriting loss in 2023, more than double the losses seen in the previous year,” the agency said in a July 25 press release. “The 2023 loss was also the worst this century, with $14.8 billion in losses in 2011 the next highest.”

Between 2010 and 2020, California, Florida, Georgia, North Carolina, Texas and Washington accounted for more than half of the country’s population growth. All six states are prone to severe weather, AM Best noted.

“Population trends show residents increasingly moving toward regions that are more prone to hurricanes, severe convective storms, or even wildfires,” said David Blades, an associate director at the firm.

California is prone to fires and flood disasters, according to data from the U.S. Federal Emergency Management Agency (FEMA), while Washington is vulnerable to floods and severe storms. Texas is susceptible to fires and floods while Florida is largely prone to flooding. Floods and severe storms sometimes hit North Carolina and Georgia.

A key measure showing the struggle of the insurance industry is the combined ratio, which measures the profitability and financial health of insurance firms. Values above 100 percent indicate losses for the companies while those below 100 percent indicate profits.

Last year, the combined ratios exceeded 100 percent in 17 states, said AM Best. The ratio remained below 100 in New England and the South Atlantic region but surpassed it in the Pacific, Southwestern, and Rocky Mountain areas.

“A growing population means an even larger rise in real property development and thus in insured values,” said Christopher Graham, senior industry analyst at AM Best. “Construction in catastrophe-prone areas adds to flood risk. It also increases the risk of wildfires in areas prone to them due to human activity, as well as utility companies.”

AM Best criticized “restrictive regulatory environments” in several disaster-prone states for adding to the challenges faced by the home insurance sector.

Many insurance companies are now considering whether to exit certain markets, it said. The firm believes a return to profitability over the near term is “unlikely” for the sector.

Homeowner Burden Rising

With home insurers facing high costs, homeowners are also bearing a burden.

Home insurance rates jumped 5.8 percent in the first quarter of 2024 nationwide, with double-digit increases in states like Nebraska, Illinois, and Montana, according to data from lending marketplace LendingTree. Since 2019, home insurance rates have surged by almost 38 percent.

A LendingTree survey found that almost a third of Americans were struggling to keep up with their home insurance premiums. More than a quarter were worried their homes could soon become uninsurable, with some receiving nonrenewable notices from their insurance companies.

Non-renewal notices can be “daunting” for homeowners, Divya Sangameshwar, insurance spokesperson for LendingTree, told The Epoch Times in May. Rising home prices, the number of claims filed by homeowners, climate change, and other increased risks can influence insurance firms not to renew a person’s policy.

“The wildfires and hailstorms in Colorado caused billions of dollars in damages, which has led to significantly higher premiums,” she said.

“If you live near the coast, there’s been unprecedented rate hikes due to storms and flooding,” she added. “The costs can become so much of a shock that homeowners often consider moving because the insurance premiums are now making their home unaffordable.”

Things may get tougher for homeowners as insurance rates could continue rising while their options for insurers decline, according to a report by the National Association of Realtors.

It pointed out that weather forecasters predict a “lively hurricane season,” so additional rate hikes can be expected next year in many coastal regions. Big insurers like Farmers, State Farm, and Allstate are leaving states like Florida and California as they see these places as high risk, the report said.

“It’s possible that the highest-risk areas will become uninsurable,” stated Betsy Stella, vice president of Carrier Management and Operations at Insurify. “However, where there’s demand, typically a supplier will appear. The question will be—at what cost?”

Last year, Karen Collins, the vice president of the property and environmental segment at the American Property Casualty Industry Association, called on homeowners, renters, and businesses to take steps to mitigate losses from disasters by hardening their properties.

“Mitigation is the key to easing the pressure on costs for everyone,” she said.