Rising Natural Disasters and Economic Factors Lead to Increasing Homeowners Insurance Costs

The Insurance Research Council’s recent brief reveals a notable increase in homeowners insurance costs, driven by a combination of more frequent and severe natural disasters, rising home repair expenses, and other economic factors. In 2020, the average U.S. household spent about 1.93% of their income on homeowners insurance, with significant variations across states. Utah emerged as the most affordable state, with households spending only 0.92% of their income on insurance, contrasting sharply with Louisiana, where the figure stood at 3.84%.

This affordability gap is influenced by various factors, including regional differences in natural hazards, the frequency and average payout of claims, and risks covered by home insurance policies like theft and vandalism. Over the past two decades, there has been a clear trend of insurance premiums growing faster than personal incomes, exacerbating affordability issues. Although there was a slight dip in expenditure share in 2019 and 2020, the most recent data doesn’t reflect the ongoing rise in insurance costs.

The situation is further complicated in some states by crises in insurance availability. Insurers, grappling with these affordability challenges, are either reducing their exposure or pulling out of certain markets. This response highlights the need for insurers and policymakers to scrutinize the factors driving claim costs to improve the affordability and availability of homeowners insurance. Dale Porfilio, president of IRC, emphasizes the importance of insurers being able to price policies in a way that reflects the risks they assume.