2024 Homeowners Insurance Outlook Receives Negative Rating

21 Nov

The insurance news for 2024 is certainly not great. Experts expect that extreme weather and increasing costs will push up insurance costs and make insurance companies more selective when deciding where they will write policies. 

Recently, credit rating agency AM Best downgraded the entire home insurance industry from stable to negative. According to Richard Attanasio, a senior director at AM Best, the negative outlook is because of the many challenges that home insurance companies face. 

“Depending on the location of the risk, consumers are likely to see higher premium levels and increased scrutiny of the property condition and risk profile,” said Attanasio in a recent Forbes article. 

Severe Weather Continues to be an issue

Severe weather and the resulting storms often result in costly claims that is making many insurers rethink where they will write coverage as well as how much they charge for coverage. 

Locations where climate change is causing unprecedented damage will see higher rates as well as issues with being able to find coverage. Wildfires in the West and hurricanes and other severe weather in the Gulf Coast area will make getting coverage in those areas possibly more difficult. 

In some areas, many insurers including major insurance companies such as Allstate, Farmers, Nationwide and State Farm are pulling out completely or offering reduced coverage in high-risk areas where claims due to extreme weather events have pushed up their costs.

As more insurers pull out of certain areas, homeowners in those areas have to turn to the insurer of last resort in the state. Policies from insurers of last resort tend to be more expensive and often come with coverage limits but may be the only option available to homeowners in some areas. 

The West and in particular California are an example of growing wildfire risk. Wildfire is becoming increasingly more destructive. In its most recent National Risk Assessment, First Street Foundation found that the West has seen a 215% increase in the number of structures destroyed. This is despite the fact that the total area burned increased at a much lower rate (48%).

According to the First Street Foundation report:

  • 23.9 million properties at risk of wind damage.
  • 12 million properties at risk of flooding.
  • 4.4 million properties at risk of wildfire.

First Street Foundation’s Wildfire Model which is used to measure property risk as well as the chances of structure loss and economic damage shows that severe climate perils destroy on average over 17,000 structures a year.  First Street Foundation is predicting that number will go up 34,000 structures annually in 30 years. All of this means insurers will be confronting more risk in the future.

“Insurance companies will look more at current and future risk rather than just previous risk, which they’ve done in the past,” said Jeremy Porter, head of climate implications research at the First Street Foundation in the recent Forbes article.

It’s not just wildfires that are presenting an issue, severe weather also leads to flood damage. The National Flood Insurance Program has had to double flood insurance premiums in 12 states due to increased costs and risks. Unfortunately, this often leads to homeowners dropping their flood insurance which can be an expensive mistake if your home is flooded. 

Experts such as Porter believe that climate change will steadily increase premiums as insurers look for ways to lower their costs and minimize their risk. 

Insurers Will Get More Selective When Writing Coverage

The trend of insurance companies pulling out of certain areas due to severe weather claims which has hit Florida and California hard will continue and spread to other states. As insurers scrutinize properties more closely for risks, it will leave some homeowners desperately searching for new coverage or having to turn to their state’s insurer of last resort. 

In some areas, insurers have decided that severe weather has made that region too risky, and they have non-renewed policies or pulled out of some areas completely. As fewer insurers write coverage in certain areas, less coverage leads to higher premiums for homeowners in that area. 

This can also lead to more and more homeowners seeking coverage with their state’s insurer of last resort. Recently, Colorado had to set up a Fair Access to Insurance Requirements (FAIR) plan as coverage has become more difficult to find due to wildfires. Colorado’s FAIR plan will start selling policies in 2025 and is the first new state-chartered property insurance plan in 41 years.

The issue with FAIR plans is that they are designed to be the insurer of last resort and if they end up being the largest insurer in the state (which has happened in Florida) there is a very real risk they will not be able to cover all claims if there is a major disaster. 

Material Costs Still Leading to Higher Claim Costs

The increase in labor and materials costs have also pushed premiums up. The cost of construction materials has increased an average of 19% in recent years. Here are a few cost increases in 2023:

  • 16% in the cost of wood
  • 15% in the cost of concrete and masonry
  • 11% in the cost of insulation
  • 12% in the cost of electrical conduit work
  • 22% in the cost of steel

These cost increases impact insurance rates as insurers have to cover repair or rebuilding costs after a claim and if they are paying more for materials and labor, that cost will be passed onto their policyholders. 

Homeowners are Raising Deductibles

One way to lower your premium if your rates increase is to raise your deductible and that is what many homeowners are doing. 

In years past, $1,000 was the most common home insurance deductible but that has started to change. According to an analysis of 9 million home insurance policies by Matic Insurance, which is a home and auto insurance comparison provider, the number of new policies with deductibles of $2,000 to $2,500 has increased by nearly 200% from 2019 to August 2023.

While raising your deductible is a good way to lower your premium, always choose a deductible that you can easily cover in the event you have to make a claim on the policy. 

A Few Tips to Save Money on Homeowners

If your premium has headed up, here are a few ways to lower your rates:

  • Shop your coverage: This is the best way to lower your premium. Insurers rate risk differently which can result in dramatic premium differences. Shop multiple homeowners insurance rates all in one place with us at GetHomeInsuranceQuotes.com. When looking at multiple policies, it is best to compare apples to apples regarding coverage levels and deductibles. 
  • Raise your deductible: Insurers will lower your premium if you carry a higher deductible so if you can double your deductible your premium may drop significantly. Always choose a deductible that you can easily afford in the event you have to make a claim on the policy. 
  • Discounts: Insurers offer plenty of discounts when it comes to coverage, and you need to make sure all available discounts are being applied to your policy. Have your insurer do a discount check to make sure you are getting all discounts that apply to your situation. 

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