Homeowners insurance is often overlooked.
When people are considering a home purchase, the sale price, taxes and mortgage costs receive most of the attention. While the lender will estimate a monthly insurance amount, it is rarely a main point of discussion. As a result, buyers often don’t think much about it (or research it) until a few weeks before closing. In the last few years, many of those buyers have experienced significant sticker shock. Have rates actually gone up that much?
How much have rates increased?
Many of my posts caution readers that national real estate statistics don’t accurately reflect any local housing markets–and I stand by that. Real estate values, demand, and inventory are intensely local. Homeowners insurance works differently, though. Insurance companies spread risk across large regions and even across the country. So when insurers face massive losses from Florida hurricanes, California wildfires and Louisiana flooding, those costs ultimately influence premiums in other areas. Here in Pennsylvania, we are fortunate not to have an abundance of natural disasters (tornados, hurricanes, floods, fires, earthquakes) and our premiums have increased less than in many states. We are, however, still feeling the ripple effects of national averages:
- Premiums are up roughly 64% since 2021 according to a Newrez study of 1.2 million mortgages.
- ICE Mortgage Monitor reported insurance costs are up about 72% since 2019 nationally.
- Before 2020, increases were much more modest — roughly 17% total from 2016–2020 in one major servicing dataset.
Why have rates increased so steeply?
1. Natural disasters and climate risk
This is the single most important driver of increased rates. Insurance companies are paying out more claims from hurricanes, wildfires, hailstorms, flooding and severe storms. Even states like ours that, historically, have not been considered high risk for weather-related claims have seen a measurable increase.
2. Rebuilding costs have exploded
Homes cost much more to repair and rebuild than they did 5 years ago. While lumber and other building supplies are not at the all-time highs we saw due to supply chain issues during COVID, prices are still appreciably higher than pre-COVID. In addition to increases in building costs, appliances have gone up and even the permitting costs have inched up. Furthermore, some analysts suggest that a reduction in the immigrant workforce will result in higher labor costs. When homes require repairs (or full rebuilds), insurance companies have to find a way to finance those claims. Raising premiums is the most direct way of covering those costs.
3. Insurance companies are playing catch up
We’ve seen a sharp increase in catastrophic weather events in the last several years. Damage to homes and corresponding insurance claims have caused insurers massive losses. In order to stay in business, they have to refill their coffers–higher premiums are the result.
- In 2020, vs 2019, insured natural disaster losses saw a 40% year-over-year increase, (Reuters).
- LexisNexis reported that catastrophic weather events accounted for 39% of all homeowners claims in 2020, the highest level in at least six years at that point.
- By 2024, catastrophe claims represented 42% of all home insurance claims and nearly 64% of total loss dollars, another multi-year high. LexisNexis also found overall homeowner loss costs in 2024 were nearly 50% higher than in 2019.
- rates increased
- underwriting tightened
- some insurers exited markets like California and Florida
- others reduced exposure in coastal or wildfire-prone regions
How else has homeowners insurance been affected?
While the basis of this article is the increase in insurance premiums, other aspects of insurance have been affected as well. Underwriting guidelines have tightened as insurers are much more cautious (and ask a lot more questions) before they agree to insure any given property. For example, roof age has become a standard question, which it was not five years ago. Why? Because not only are roofs expensive to replace, but if they leak, the damage to the rest of the home can be particularly costly.
Depending on where you live, you may find it hard to even find an insurer. Again, states with the most/highest cost claims have been “dropped” by many insurance companies. Similarly, homes that may lie in more fire- or flood-prone areas (even in states that have not been dropped) may be subject to less complete coverage/reimbursement. Again, even though PA is not among the high-risk states, the insurance companies increase fees across the board to compensate for their losses, both historical and future.
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