- Rising premiums are destroying dreams of owning a home
- Other things related to housing have become more expensive
- Inequality in the insurance sector
Rising premiums are destroying dreams of owning a home
Financial guru Suze Orman has warned that the impact of climate change on rising property insurance premiums is destroying the American dream of home ownership.
A 72-year-old woman gave up her own 2,100 sq ft (about 200 sq m) oceanfront condo in Florida when her insurer quoted her an annual premium of USD 28,000.
S. Orman argues that Americans will soon be less and less interested in owning their own homes because the cost of insurance is making them too expensive to maintain. This in turn could lead to a fall in real estate prices[1].
According to the National Oceanic and Atmospheric Administration, the US experienced 28 natural disasters last year, each causing around €1 billion in damage. The EU has suffered more than USD 1 billion in disasters in the last two years.
As a result, the national average cost of home insurance rose by 23 percent to USD 1,759 a year between January 2023 and January 2024, according to Bankrate data.
S. Orman told DailyMail that climate change will significantly change the way people want to own their own homes.
"Look at what is happening in Southern California. Look at the devastating hurricanes that are hitting even places where hurricanes were not as common before. I think people are starting to question that. Especially with mortgage rates the way they are," she stressed, "buying property is becoming unpredictable. I would never have thought to advise homebuyers to make sure you can afford to quadruple your property insurance in the future."
The point is that in the US, buyers cannot take out a mortgage without taking out home insurance.
Other things related to housing have become more expensive
S. Orman owns her own home in Florida, but she pointed out that she does not pay USD 28,000 for her insurance, which could lead to disputes with the insurance company in the event of an insured event[2].
Disasters are very real as extreme weather events such as hurricanes, floods, and tornadoes are becoming more frequent in the US. According to the US Census Bureau, such events have forced around 2.5 million people to leave their homes.
Higher construction costs have also made repairs more expensive, pushing up insurance premiums and causing some insurers to pull out of disaster areas altogether.
Last year, America's largest home and car insurance company, State Farm, announced it would no longer insure homes in California, saying the risk of fires was too high and the cost of rebuilding too high.
According to S&P Global, in the first nine months of 2023, State Farm's loss ratio was 84 percent, up 20 percent from 2022.
Insurers who pulled out of California made life difficult for actress Marta Cross. After buying a home in Los Angeles last year, she was faced with extremely high insurance bills. The actress could have been left without a home at all because no private company would insure it. Finally, she had to turn to a public insurer, who agreed to insure her home for a year for USD 4,000.
Inequality in the insurance sector
A recent Bankrate study revealed that the American home insurance market is not uniform, meaning that residents of some states have to pay twice as much as others.
Its findings showed that homeowners in Nebraska, Oklahoma and Kansas were receiving the highest bills, while Louisiana residents were suffering from the fastest rising premiums. Louisiana has been devastated by hurricanes, severe storms and flooding in recent years[3].
According to Bankrate, Americans can reduce their home insurance costs by bundling their car and home policies or using different types of home insurance.
It's also worth asking your provider for a discount, for example, if you have a new home security system installed in your home.
Another option is to increase your home insurance excess, but experts warn that this method is risky.
The deductible is the amount of insurance you have to pay out of your own pocket. Most homeowners' insurance policies have a deductible of at least USD 1,000.
The higher the deductible, the lower the premium, but the more you will have to pay out of pocket in the event of an accident.
"Deductibles have become a very big problem," Charles Nyce, an associate professor of risk management and insurance at Florida State University's College of Business, told DailyMail.com, "It's dangerous because there are going to be people who are going to have a loss that they can't afford."
