Homeowners Insurance Policy
Previously reported – January 2020
Coastal insurance rates soar again. Is system broken?
If you own a home in coastal North Carolina but don’t live in it, you will likely see an increase in the premium you pay for wind insurance beginning July 1. The group that represents insurance companies recently struck a deal with the N.C. Department of Insurance that will result in a statewide average 5.3% increase for wind coverage for non-owner-occupied residences. The N.C. Rate Bureau, a state-mandated group that represents insurance companies, had requested a 24.3% increase in wind-coverage premiums and a 4.6% hike in fire coverage. No increase in fire premiums was allowed. Although the 5.3% average increase in wind coverage is a far cry from the original request, it falls almost completely on coastal areas, where it’s more in the 10%-and-above range. The Insurance Department stressed that the settlement does not affect homeowner policies. “Dwelling policies are offered to non-owner-occupied residences of no more than four units, including rental properties, investment properties and other properties that are not occupied full time by the property owner,” the department stated in a news release. In September, the Department of Insurance reached a similar deal with the Rate Bureau on homeowners’ policies. The bureau had proposed a 17.4% statewide overall increase. The settlement approved a 4% average increase, but, as with the dwelling agreement, most of the increase was felt at the coast.
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Previously reported – February 2021
Insurance companies request rate increase for homeowners
The North Carolina Rate Bureau (NCRB) has requested a 24.5 percent statewide average increase in homeowners’ insurance rates to take effect August 2021, according to a news release issued Nov. 10 by state insurance commissioner Mike Causey. The NCRB is not part of the N.C. Department of Insurance but represents companies that write insurance policies in the state. The department can either agree with the rates as filed or negotiate a settlement with the NCRB on a lower rate. If a settlement cannot be reached within 50 days, Causey will call for a hearing. Two years ago, in December 2018, the NCRB requested a statewide average increase of 17.4 percent. Causey negotiated a rate 13.4 percentage points lower and settled with a statewide aver-age rate increase of 4 percent. One of the drivers behind this requested increase is that North Carolina has experienced increased wind and hail losses stemming from damaging storms. A public comment period is required by law to give the public time to address the NCRB’s proposed rate increase.
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- To see a table of proposed homeowners’ rate increases go to: click here
- Territory 120 / Beach areas in Brunswick County / NCRB proposed increase 25%
Insurance commissioner sets hearing date in dwelling insurance rate hike case
North Carolina Insurance Commissioner Mike Causey has set Jan. 18, 2022, as the hearing date for the North Carolina Rate Bureau’s proposed 18.7% dwelling insurance rate increase. “We are not in agreement with the Rate Bureau’s proposed increase filed in December,” Commissioner Causey said. “I want to make sure that the process is transparent, and that consumers’ interests are protected while making sure our insurance companies remain healthy so they can pay claims.” The Rate Bureau is not part of the Department of Insurance. It represents all companies writing property insurance in the state. The notice of hearing said that some of the data included in the Rate Bureau’s Dec. 14, 2020, filing contained a lack of documentation, explanation, and justification of both the data used as well as the procedures and methodologies used. The hearing is set for 10 a.m. Jan. 18, 2022, in the second-floor hearing room in the Albemarle Building, 325 N. Salisbury St., Raleigh. The hearing will take place unless the N.C. Department of Insurance and the N.C. Rate Bureau are able to negotiate a settlement before that date. State law gives the Insurance Commissioner 45 days to issue an order once the hearing concludes. Once the order is issued, the NCRB has the right to appeal the decision before the N.C. Court of Appeals. A Court of Appeals order could then be appealed to the N.C. Supreme Court. The NCRB and DOI can settle the proposed rate increase at any time during the process. Dwelling insurance policies are not homeowners’ insurance policies. Dwelling policies are offered to non-owner-occupied residences of no more than four units, including rental properties, investment properties and other properties that are not occupied full time by the property owner. The filing covers insurance for fire and extended coverage at varying rates around the state. Under the NCRB proposal, the increases would be felt statewide with most consumers seeing a double-digit increase. The last NCRB dwelling rate increase filing was in 2019 that resulted in a settlement of 4%, which took effect July 1, 2020.
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Causey sets hearing date in dwelling insurance rate hike case
North Carolina Insurance Commissioner Mike Causey has set Jan. 18, 2022, as the hearing date for the North Carolina Rate Bureau’s (NCRB) proposed 18.7% dwelling insurance rate increase. We are not in agreement with the Rate Bureau’s proposed increase filed in December, Commissioner Causey said. “I want to make sure that the process is transparent, and that consumers’ interests are protected while making sure our insurance companies remain healthy so they can pay claims. The Rate Bureau is not part of the Department of Insurance. It represents all companies writing property insurance in the state. The notice of hearing said that some of the data included in the Rate Bureau’s Dec. 14, 2020, filing contained a lack of documentation, explanation, and justification of both the data used, as well as the procedures and methodologies used. The hearing is set for 10 a.m. Jan. 18, 2022, in the second-floor hearing room in the Albemarle Building, 325 N. Salisbury St., Raleigh. The hearing will take place unless the N.C. Department of Insurance and the N.C. Rate Bureau are able to negotiate a settlement before that date. State law gives the Insurance Commissioner 45 days to is-sue an order once the hearing concludes. Once the order is issued, the NCRB has the right to appeal the decision before the N.C. Court of Appeals. A Court of Appeals order could then be appealed to the N.C. Supreme Court. The NCRB and DOI can settle the proposed rate in-crease at any time during the process. Dwelling insurance policies are not homeowners’ insurance policies. Dwelling policies are offered to non-owner-occupied residences of no more than four units, including rental properties, investment properties and other properties that are not occupied full-time by the property owner. The filing covers insurance for ire and extended coverage at varying rates around the state. Under the NCRB proposal, the increases would be felt statewide with most consumers seeing a double-digit increase. The last NCRB dwelling rate increase filing was in 2019 that resulted in a settlement of 4%, which took effect July 1, 2020.
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Previously reported – November 2021
NC DOI Again Postpones Hearing on 25% Homeowners Rate Hike
A hearing set for today on a proposed 24.5% average increase in homeowners’ insurance rates has been postponed until Jan. 3, the North Carolina Department of Insurance announced. The rate increase was recommended by the North Carolina Rate Bureau one year ago and has met with stiff opposition from realtors and homeowner groups since then. The Rate Bureau is not part of the insurance department but represents insurers in the state. Insurers have said that increased wind and hail losses from storms are the main drivers behind the requested increase. Insurance Commissioner Mike Causey said in a news release that the January hearing will proceed if the department and the rate bureau cannot negotiate a settlement for a lower rate increase. This is the second time the hearing has been postponed. A Sept. 20 meeting was rescheduled for today, Nov. 1. The recommended increase follows one in 2018, in which the bureau asked for a statewide average hike of 17.4%, but later settled for a 4% increase. In April of this year, the bureau had proposed an 18.7% average increase in dwelling insurance, for rental and investment properties, but settled for a 7.6% rise after negotiating with the department. If the two sides do not reach a compromise, the hearing on the latest proposed increase will be Jan. 3 at 10 a.m. in the Albemarle Building, 325 N. Salisbury St., in Raleigh.
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Previously reported – December 2021
Proposed 24.5% homeowners insurance increase in NC negotiated down
The N.C. Department of Insurance has ended its legal dispute with the North Carolina Rate Bureau on a proposed 24.5% homeowners insurance rate increase. Insurance Commissioner Mike Causey and the Rate Bureau settled on an average 7.9% statewide increase, 16.6% lower than the Rate Bureau requested. “I am happy to announce that North Carolina Homeowners will save over $751 million in premium payments compared to what the NCRB had requested,” Commissioner Causey said. “I am also glad the Department of Insurance has avoided a lengthy administrative legal battle which could have cost consumers time and money.” The Rate Bureau represents companies that sell property insurance in North Carolina and is not a part of the N.C. Department of Insurance. In early November the group proposed an overall statewide average of 24.5%. After studying the data, Commissioner Causey negotiated a settlement for a much smaller increase. The increase will take effect on new and renewed policies beginning on or after June 1, 2022. As part of the agreement, Causey said the Rate Bureau will not seek another homeowners rate increase until 2024 at the earliest, meaning this rate change will be in effect until at least 2024.
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Previously reported – January 2022
NC Homeowner’s Insurance Rate Settlement Only A Partial Victory
Homeowners in Carteret and the other 19 coastal counties received good news in late November with the announcement that North Carolina Insurance Commissioner Mike Causey denied a proposed insurance premium increase that would have raised homeowner’s insurance up to 25% and instead negotiated a rate increase that tops out at 9.9%. While this is good news for local homeowners as well as those across the state, it raises concerns that need to be addressed.
Due to the importance of homeowner’s insurance, and the fact that it is a necessity for home mortgages, there needs to be greater transparency on the part of insurance companies providing claim details so that the public better understands the justification. And, in the cases of a rate settlement such as announced last month by Commissioner Causey, there needs be more disclosure about the process and the arguments used that resulted in the new premium charges. In mid-November of 2020, the N.C. Rate Bureau (NCRB), a legislatively created department tasked with assuring accuracy of insurance rate administration and to represent those agencies licensed to operate in the state, presented a premium increase to the state’s Department of Insurance (DOI) for homeowner’s insurance that averaged 24.5% statewide. In making the rate request, the rating bureau stated that because of an increased number of insurance claims over the preceding years a much high rate was justified to assure the solvency of the requesting companies. But out of the apparent concern for the financial impact of even higher rates, the NCRB and its members proposed only a 24.5% increase. Keep in mind this was an average increase. The state is divided into 29 territories and each territory carries a specific risk rating, with the coastal region and a few mountain regions carrying the highest risk rating. Because the 20 coastal territories are considered to have the highest risk of claims due to hurricane exposure, insurance premiums for that region of the state were facing premiums increases as high as 25% while other territories were scheduled for single digit increases. Public notice of this 2020 rate proposal was disseminated by Commissioner Causey in a two-page press release to newspapers and broadcast media. Because the notice was sent out a week before Thanksgiving, the traditional beginning of the Christmas season, most newspapers and the few broadcast media that cared enough to read the new release provided only cursory coverage. The public notification of this proposal was extremely short on both time allotted for public comment, one month, and equally short on information about the reason for the increase. The only explanation provided in Commissioner Causey’s release was “one of the drivers behind this requested increase is that North Carolina has experienced increased wind and hail losses stemming from damaging storms.” There is no mention of what storms were the cause nor any indication as to the losses suffered, nor did it mention that there was an extreme disparity of rate changes, with the coastal region experiencing the highest rate increases in all categories. Anyone interested in the details of the rate increase needed to go to the Rate Bureau’s website which is not part of the state’s DOI website and then attempt to comprehend the two-part, two-thousand-page filing. The NCDOI website had few details about the filing and only provided information for making comment or participating in a “virtual meeting.” Late last month, almost a year to the day after the initial rate increase request, Commissioner Causey announced that he and the rate bureau had settled on an increase that caps premium increases to 9.9% for the areas designated as high risk and 5.5% for other territories, which results in a statewide average of 7.9%. In making the announcement about the recent settlement, Mr. Causey stated, “I am happy to announce that North Carolina Homeowners will save over $751 million in premium payments compared to what the NCRB had requested. I am also glad the Department of Insurance has avoided a lengthy administrative legal battle which could have cost consumers time and money.” There is no question that homeowners, condominium owners and apartment renters in the 20 coastal counties are far better off now that Mr. Causey has negotiated the proposed 25% premium insurance increase down to only 9.9%. But still, the public has been kept in the dark about the process and reasoning behind both the original requested premium hike and now the settlement. Considering the complexities of the insurance rate proposal and the expansive requirement of insurance for property ownership, it stands to reason that the NCDOI should do more to inform and educate the public. Simply announcing that a rate increase has been proposed with little, very little, explanation and then to provide only one month to understand and research the facts provided is unfair to the public. It is worth noting that this proposal, like four other previous proposals, came during the holiday season when the general population was focused on the Christmas season. The 2020 requested premium increase is particularly onerous as the nation and state recover from the economic impacts of the Covid-19 pandemic and rapid out-of-control inflation. Commissioner Causey and the legislature should establish the same procedures utilized by the N.C. Utilities Commission. Utility companies licensed to provide electricity and gas services in the state, like the insurance industry, must seek approval for all rate increases or adjustments in service. In those cases, the utility company requesting a rate or service change must present documentation for the changes to the state’s Utilities Commission. The commission then conducts public witness hearings in several towns affected by the rate or service proposals. Following those meetings, the commission then conducts an expert witness hearing and from both the public forums and more comprehensive hearings, the commission’s staff makes a report for the Utilities Commission’s final decision. Mr. Causey’s announced rate reduction is only a partial solution. Recent news reports noting that home insurance is rising faster than inflation should cause even greater concern for homeowners, spurring Commissioner Causey and the legislature to improve public disclosure and more transparency in the process.
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Previously reported –July 2022
Home insurance costs nearly double due to inflation
Inflation has affected nearly every aspect of life, from food, to gas, to labor. Now, homeowners could see those costs reflected in their insurance premiums. “It’s the first time in my lifetime, that I’ve seen inflation at such a high level and at such a fast rate,” said North Carolina Coastal Insurance owner, Hernan Lois. According to Lois, the average homeowner will pay 30 to 40 percent more for homeowners insurance this year because of inflation raising property values, labor prices, and building supply costs. According to builder, Neil Sims, the average OSB board (one of the most common materials home builders use) used to cost around eight dollars apiece. Just recently, that cost reached the mid 30-dollar range. “The prices… the labor prices and material prices have significantly increased. So, because you could build a house for 200,000 dollars five or 10 years ago, does not mean anything anymore,” Sims explained. And with the height of hurricane season quickly approaching, insurance expert Hernan Lois says it’s more important than ever to update your coverage. “The reality is,” Lois continued, “you want to make sure you have full replacement value because if something were to occur, you want to be made whole.” Lois says total losses happen more often than you’d think. Being underinsured can be a disaster in itself. “Well ultimately out of pocket expenses. It means that they would have to pay for all of the additional reconstruction costs or possibly to their contents coverage. Their loss of use coverage, which is their living expenses while their home is being rebuilt,” said Lois. Though he opted for more coverage, Wilmington resident Dennis Mauger says his insurance went up 600 dollars a year. It was a tough financial pill for the retiree to swallow. “We had a house fire a couple years back and thank goodness we had good coverage on insurance replacement costs. I understand the value of insurance, it’s just hard to, if it’s the year that you’re not using it to absorb those costs,” Mauger said. When a storm system is named and predicted to come to our region, insurance companies can bind policies, keeping homeowners from changing their coverage plans.
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Previously reported –May 2022
Your Homeowners’ Insurance Bill Is the Canary in the Climate Coal Mine
If you don’t think you’ve been affected by global warming, take a closer look at your last homeowners’ insurance bill: The average cost of coverage has reached $1,900 a year nationwide, but it’s $4,000 a year in New Orleans and about $5,000 a year in Miami, according to Policygenius, an online insurance marketplace. And that is pocket change compared with the impact climate change may ultimately have on the value of your home. We have reached a turning point: Climate risk is driving insurer decisions like never before. After recent years of paying out claims for about 20 disasters a year with damages of over $1 billion, a sixfold increase from the 1980s, insurers are getting serious about new pricing models that incorporate the costs of a warming climate. Across the United States, premiums jumped 12 percent from 2021 to 2022, according to Policygenius estimates, and they are expected to continue to rise. Even with higher premiums, unpredictable losses are wreaking havoc on insurers’ bottom lines. Ten insurers have gone belly up in Florida in just the last two years. And in many cases, insurers are pulling back in risky areas, leaving state-backed insurance plans holding the bag. Both private and government-backed insurers are undercapitalized for dealing with the potentially massive disasters we could be facing in coming years. This shortfall foreshadows more premium increases, which will drag down house prices. And losses will not be borne by those residing in higher-risk areas only; they will be borne by policyholders everywhere. Thus far, housing markets have largely managed to ignore these potential exposures. Over the last three years, home prices are up around 37 percent nationwide. They are up even more in parts of Florida and the Southwest that are predicted to suffer significant impacts from a warming climate. Take Phoenix, which, by 2060, is forecast to endure 132 days each year with temperatures of over 100 degrees. Last summer, the water level in Lake Mead, a critical source of water for 25 million people in the Southwest, reached its lowest level since the reservoir was filled in 1937. And living in Phoenix requires energy-intensive amenities like air conditioning, which worsen these consequences. Yet Phoenix home prices are up 53 percent since January 2020. Why are so many home buyers putting themselves in harm’s way? The simplest explanation is that they are choosing to focus on the short-term benefits of sunny weather rather than the longer-term problems. A defining feature of the pandemic housing boom has been Americans, particularly retirees, moving southward. And with about 10,000 Americans turning 65 each day, this pattern could continue for years to come. It’s hard to make decisions based on things we haven’t experienced. But by ignoring the growing consequences of climate change, we are investing too much in potentially hazardous areas in a way that’s hard to unwind. In 50 years, the result could be miles of unlivable homes along waterfronts and in deserts. The financial consequences of these choices will be enormous, causing ripple effects through insurance markets and ultimately undermining home values. Climate risks are difficult to forecast and are increasingly correlated: From insurers’ perspectives, it’s “Everything Everywhere All at Once,” with heightened risks of floods, droughts, wildfires and more. To have the necessary buffer to pay out claims after catastrophic losses, insurers will need more reserves and more reinsurance, and they will pass those costs on to policyholders in the form of higher premiums. That includes policyholders who live well out of harm’s way. The year after the Marshall fire destroyed over 1,000 homes and caused over $2 billion in damage near Boulder, Colo., average premiums rose over 17 percent statewide. While insurers can choose to stop offering insurance, the homeowners and governments they leave behind will still have to deal with the risks. And as the costs go up, more households may decide to reduce their coverage or may choose to go without insurance entirely. It’s estimated that only one-third of households in flood zones have flood insurance — with many risking financial ruin if the “big one” hits. Then there’s the housing market. There is $30 trillion in housing equity in the United States, and the most important source of wealth for most American households is the home. If homeowners have to pay more in premiums, can’t obtain insurance at all or can’t find buyers because of fears about climate change, property values can erode or collapse even without a hurricane making landfall. This dynamic has already started: My research partner Philip Mulder and I found that low-lying housing markets in coastal Florida began to price sea level risk in the 2010s, leading to a roughly 5 percent discount relative to houses in similar, but less exposed, communities. Climate risks are disproportionately borne by lower-income groups and racial minorities, who may already live in riskier areas, are less likely to be insured, and may lack access to resources for pre-disaster preparation or post-disaster repairs. As some private insurers retreat from higher-risk areas, state-backed “insurer of last resort” plans are stepping into the void. The number of enrollees in these state-backed plans rose by 29 percent between 2018 and 2021. These plans are often more expensive, they offer less coverage than private insurance options, and they face the same concerns as private insurers about their ability to pay out in the event of a crisis without burdening policyholders statewide. What can be done? The government needs to ensure that insurers, both public and private, are sufficiently capitalized to withstand significant climate-related risks. One way to start is by instituting “stress tests” for housing and property markets against climate risk. As the recent experience of Silicon Valley Bank has taught us, the balance sheets of players in the market may be weaker than previously believed, given recent swings in interest rates. If balance sheets can’t cover the losses, either claims go unpaid, or the broader population is on the hook for the difference. These stress tests should consider not only a severe natural disaster scenario, but also a sharp “revaluation” event responding to a change in climate forecasts. How would coastal housing markets respond to news that ice sheets were melting faster than anticipated, leading to more rapidly rising seas? Current homeowners and those shopping for a house need to wake up. Some will undoubtedly dismiss these risks, reasoning that the impact is likely to be “beyond their investment window.” In making that assumption, however, they are ignoring that when they sell their home, they will need to find a buyer willing to bear the uncertainty. Other homeowners prefer to avoid publicizing risks that could harm their property value, abetted by uneven disclosure requirements across states. Right now, those of us who elect to live in safer communities are quietly subsidizing those who do not. Homeowners who move to areas that are likely to be significantly impacted by climate change should pay for the potential risks they are assuming. One way to do that would be to have Fannie Mae and Freddie Mac incorporate climate risk into their pricing models. If you want to buy a waterfront home on Siesta Key, Fla., you will pay a higher interest rate on your mortgage, a surcharge you could reduce by climate-proofing your home. Note, however, that most climate proofing won’t help if, as scientists predict, the home is literally underwater. The government should manage expectations through better disclosure and better assessment of climate perils. An easy first step would be to make detailed risk data more accessible and interpretable. Potential property owners deserve loud and crystal-clear warnings of climate-related risks, especially if prices are not yet providing a sufficient signal on their own. Private insurers are sending a warning signal about heightened climate risks that homeowners and potential buyers need to receive. Insurers’ decisions are leaving households with fewer choices, less protection, and more financial distress. Homeowners should understand the potential hazards and find the right insurance policy or policies to protect them from harm. And they need to be aware that the costs of living in harm’s way are going to rise in coming years. An era of complacency is ending. If you decide to buy that condo where you can hear the ocean’s waves, realize that you are likely to pay more for that privilege — one way or the other.
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Previously reported –May 2022
Home insurers cut natural disasters from policies as climate risks grow
Some of the largest U.S. insurance companies say extreme weather has led them to end certain coverages, exclude natural disaster protections and raise premiums
In the aftermath of extreme weather events, major insurers are increasingly no longer offering coverage that homeowners in areas vulnerable to those disasters need most. At least five large U.S. property insurers — including Allstate, American Family, Nationwide, Erie Insurance Group and Berkshire Hathaway — have told regulators that extreme weather patterns caused by climate change have led them to stop writing coverages in some regions, exclude protections from various weather events and raise monthly premiums and deductibles. Major insurers say they will cut out damage caused by hurricanes, wind and hail from policies underwriting property along coastlines and in wildfire country, according to a voluntary survey conducted by the National Association of Insurance Commissioners, a group of state officials who regulate rates and policy forms. Insurance providers are also more willing to drop existing policies in some locales as they become more vulnerable to natural disasters. Most home insurance coverages are annual terms, so providers are not bound to them for more than one year. That means individuals and families in places once considered safe from natural catastrophes could lose crucial insurance protections while their natural disaster exposure expands or intensifies as global temperatures rise. “The same risks that are making insurance more important are making it harder to get,” Carolyn Kousky, associate vice president at the Environmental Defense Fund and nonresident scholar at the Insurance Information Institute, told The Washington Post. The companies mentioned those policy changes as part of previously unreported responses to the regulatory group’s survey. The survey was distributed in 2022 by 15 states and received responses — some sent as recently as last month — from companies covering 80 percent of the U.S. insurance market. Allstate said its climate risk mitigation strategy would include “limiting new [auto and property] business … in areas most exposed to hurricanes” and “implementing tropical cyclone and/or wind/hail deductibles or exclusions where appropriate.” Nationwide has already pulled back in certain areas. The company said that in 2020, it “reduced exposure levels in some of the highest hazard wildland urban interface areas in California.” In its response to the regulators’ survey, Nationwide said it no longer underwrites coverage for “properties within a certain distance to the coastline” because of hurricane potential. Other changes will come. “More targeted hurricane risk mitigation actions are being finalized and will start by year-end 2023,” Nationwide told regulators. Berkshire Hathaway, which also offers reinsurance — insurance policies for insurance providers — wrote that increased climate disasters mean “it is possible that policy terms and conditions could be updated or revised to reflect changes in such risk.” U.S. homeowners have faced unprecedented disasters in recent weeks that have underscored the new challenges facing insurance markets. Hurricane Idalia brought severe flooding to Georgia and the Carolinas and tore through parts of Florida that had never experienced direct hits from a major storm. Tropical Storm Hilary caused $600 million in damage on the West Coast, according to Karen Clark & Co., a leading catastrophe modeling firm. The fires on the Hawaiian island of Maui, whose cause is still under investigation, led to $3.2 billion in property damage, the firm said. Those catastrophes, insurance industry insiders said, show just how quickly claims costs are escalating in the face of climate change. U.S. insurers have disbursed $295.8 billion in natural disaster claims over the past three years, according to international risk management firm Aon. That’s a record for a three-year period, according to the American Property Casualty Insurance Association. Natural catastrophes in the first six months of 2023 year in the United States caused $40 billion in insured losses, the third costliest first-half on record, Aon found. “There’s no place to hide from these severe natural disasters,” said David Sampson, president of the American Property Casualty Insurance Association. “They’re happening all over the country and so insurers are having to relook at their risk concentration.” That trend is too costly, insurers contend, and necessitates rewriting policies or eliminating coverages in growing geographic areas. Rate increases for homeowners insurance are regulated by state agencies. “That can prevent firms from pricing policies that accurately reflect risk,” said Daniel Schwarcz, who studies insurance markets at the University of Minnesota Law School. Instead of setting much higher prices for policies in specific areas that might be more vulnerable — such as regions below sea level or on the edge of fire-prone areas — insurance firms must set prices that are relatively comparable across an entire state. “We’re in the business of pricing to risk,” Matt Mayrl, vice president of strategy, performance and partnerships at American Family Insurance, said in an interview. “Sometimes your price can’t match your risk.” Many of the policy changes, experts say, may be unfavorable to certain consumers but are important for the survival of the wider insurance market. Typical home insurance policies cover damage from all manner of perils, including fire and smoke, wind and hail, plumbing issues, snow and ice, and vandalism and theft. Floods are generally covered by a separate federally administered program. Under the policy changes many large insurers are reporting to regulators, firms will continue to offer baseline policies to clients in disaster-prone areas, but without protections for damage caused by those disasters. For example, a policy in a region afflicted by hurricanes may exclude coverage for wind or hail damage, or in wildfire country, a policy without fire and smoke protection. Consumers who want those coverages would need to purchase a supplemental policy or shop for insurance from another provider. “The fact that insurers have the capacity to limit their exposure or change their exposure over time means at the end of the day their concerns are not fully aligned with the concerns of their policyholders,” Schwarcz said. Representatives from Allstate and Erie declined to comment. Berkshire Hathaway and Nationwide did not respond to requests for comment. Insurance markets, especially those that serve many regions across the country, rely on relatively stable risk projections when it comes to natural disasters. By balancing wildfire risk during the late spring in the Pacific Northwest with hurricanes in the early fall in the Southeast and winter storms in the Upper Midwest, insurers can spread risk across constituencies. In theory, providers can collect monthly premiums from a broad clientele without paying out claims on too many large-scale disasters at once. But weather patterns are changing as the planet warms. “There is no wildfire season anymore — it’s year-round,” said Sampson, who is also a member of President Biden’s Wildland Fire Mitigation and Management Commission. Major hurricanes are becoming more frequent and hold more intense rains, said Paulo Ceppi, a climate scientist at Imperial College London. Meanwhile, “tornado alley” — an area swarmed by twisters that runs from Texas and Oklahoma through Kansas and Nebraska — is moving east, according to 2018 and 2022 research published in the journals Nature and Environmental Research Communications. The variability in weather patterns means insurance companies can no longer rely on the previous risk projections that helped them make decisions. “Potential changes to the frequency and/or severity of weather-related catastrophic losses pose a risk in both the short and long term,” Nationwide wrote in its survey response. “Activity has been observed in recent years that has differed from historical norms or modeled expectations.” As insurers leave certain markets or cut certain perils out of policies, some homeowners are going without insurance. State governments have erected insurance policies of last resort. The taxpayer-backed Citizens Property Insurance in Florida was the state’s second-largest insurer in 2021 in terms of policies written, according to the Insurance Information Institute. Fourteen insurance firms have either left Florida as of April or have policy portfolios that are failing. Farmer’s, the fifth-largest homeowners’ insurance provider in the United States, said in July that it would not renew nearly a third of its policies in the Sunshine State. A state-backed policy in California, where State Farm and Allstate have withdrawn or significantly cut back on new policies, covers 3 percent of residents. But even state-backed policies must face climate risks. “When you see the insurance companies pulling out en masse because the cost of rebuilding homes in Florida is bankrupting them,” said Ben Jealous, executive director of the Sierra Club, “it’s either hubris or folly to think the state wouldn’t be bankrupted stepping in to help.”
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