In response to the rising risk of powerful storms, insurance companies are raising the cost of homeowners coverage. This comes after a series of devastating storms that tore through five states during the Memorial Day weekend. The destruction caused by these storms, which resulted in the loss of homes and the tragic deaths of at least 23 people, has highlighted the need for insurers to compensate for larger payouts due to the more frequent and severe extreme weather events associated with climate change. As a result, millions of Americans can expect higher premiums as insurance companies seek to cover these losses. According to Oklahoma Department of Insurance Commissioner Glen Mulready, it is unfortunate but necessary for premiums to increase in order to address these storm-related losses.
According to a recent analysis by S&P Global, homeowners in Oklahoma have seen a staggering 42% increase in the cost of coverage between 2018 and 2023. This surge can be attributed to the state experiencing over 90 tornadoes in 2024, more than double the average for this time of year. Additionally, Oklahomans have also faced two Category 4 hurricanes this year, further exacerbating the situation, as noted by Mulready. The situation is not unique to Oklahoma, as homeowners in Arkansas and Texas have experienced rate hikes of 32.5% and 60% respectively during the same time period, according to S&P Global. Other states, such as Illinois, North Carolina, Oregon, and Utah, have also seen increases in homeowner premiums due to factors including extreme weather, as stated by Scott Holeman, spokesperson for the Insurance Information Institute. However, it’s important to note that severe weather is not the only contributing factor to the rising costs of homeowners’ policies.
According to Holeman, insurance companies have suffered significant losses in the past year due to storms, natural disasters, inflation, and supply-chain issues. Despite raising premiums, many insurers are still operating at a loss. In fact, homeowners’ coverage has been unprofitable for insurers in four out of the last five years.
Scientists at the National Oceanic and Atmospheric Administration have found that extreme weather events are becoming more frequent and severe. In 2023 alone, the United States experienced a record-breaking 23 billion-dollar weather and climate disasters. These events, such as flooding, heat waves, droughts, and wildfires, have been linked to global warming.
Insurers like Allstate and State Farm are no longer renewing home policies in certain parts of California and Florida due to the increasing financial losses associated with extreme weather events. AAA also followed suit last year by not renewing some policies in Florida, a state that has experienced a rise in powerful storms and coastal flooding.
On the other hand, some insurers that continue to provide coverage in states prone to extreme weather are raising their rates. For example, Travelers Insurance recently received approval from California regulators to increase homeowners’ rates by an average of 15.3%.
Overall, the average homeowners insurance premium for individuals with a 30-year home loan in a single-family property rose from $1,081 in 2018 to $1,522 last year, as reported by mortgage buyer Freddie Mac.
According to a recent study conducted by the Federal Reserve, property damage caused by natural disasters is considered one of the most significant financial risks that homeowners may face. The study revealed that nearly 20% of adults in the United States reported experiencing financial consequences due to a natural disaster or severe weather event in the past year.