Homeowners Insurance Guide 2024
By Michael Giusti
Whether a home is in New England or the Gulf South, homeowner’s insurance is a fact of life, and the price of homeowners insurance varies greatly from state to state.
The influence of regulators, the frequency of storms, and even the price of homes all weigh into why policies in one state are more expensive than in another. But understanding these factors as well as looking ahead at what might be affecting them in the future can help make sense of this ubiquitous policy.
In this guide, we will be evaluating what factors are impacting on homeowners insurance prices, what might be in store in the near future, and what homeowners need to know to navigate today’s complex market.
Policy Pricing
Inflation has driven up the cost of just about everything, and homeowners insurance is no different. Since 2020, homeowner’s premiums are up nationwide 14%. While that is lower than the overall rate of inflation over that time, the national number can be deceiving. That is because increases have been far from homogenous nationwide, with some states seeing astronomical increases and others seeing policies staying relatively flat.
Moving forward, the National Association of Realtors projects that some states will face much bigger increases in the coming year. Louisiana leads the nation and is facing a 23% increase. Policies in Maine are likely to go up 19%, and in Michigan, rates are likely to jump 14%, just to name a few.
Increased homeowners insurance rates are becoming a housing issue. That is because with prices hitting such highs, many homeowners can’t keep up. If the homeowners have a mortgage, they have no choice but to either pay the higher premiums, sell, or face foreclosure. If the homeowner owns the home outright, many are staring down the terrifying decision of dropping their coverage altogether and potentially leaving their family’s biggest asset unprotected.
This brings up the question of why policies are getting more expensive. The first factor most people point to when they discuss policy pricing is the impact of weather, and specifically, human-caused climate change.
On the Gulf Coast and Atlantic Seaboard, hurricanes take center stage, while along the Pacific Coast and in the Mountain West, wildfires lead the conversation. And in the middle of the country, hail and tornados are driving up rates. In the end, seemingly no area of the country is immune from weather influences.
Worry about hurricanes seems to be well-founded this year. The National Weather Service is calling for between 17 and 25 named storms in 2024, and other researchers and commercial weather services are singing a similar tune.
Meanwhile, many parts of the country are facing above normal wildfire danger driven by high temperatures and stubborn drought conditions.
But weather isn’t the only factor driving up premiums. Inflation itself is pushing up rates because the cost to rebuild or repair homes after a claim is more costly since labor and materials prices have been marching steadily upward.
Another factor the industry points to is something they dub “social inflation.” Social inflation refers to the trend of litigious policyholders being more likely to sue their insurers rather than accept the results of their post-claim settlement.
Social inflation was one of the main legislative focuses in Florida, where lawmakers outlawed the practice of allowing contractors to file lawsuits against insurers on behalf of the homeowner.
One pricing factor that affects every policy that is written is reinsurance.
Reinsurance refers to policies that are written by financial giants to backstop the insurance companies themselves in the case of a catastrophic loss – insurance for insurers.
In 2023, reinsurance rates jumped in a way that shocked the market. This year’s renewals were back to a bit of normalcy, but they still went up between 5% and 10% in many cases, increasing the underlying costs for many policies.
What reinsurance rates will look like moving forward is an open question.
Reinsurers have faced significant challenges over the past year due to overarching climate pressures, with wildfires, hailstorms, hurricanes, and even earthquakes worldwide causing substantial losses that need to be factored into future risk models.
Additionally, global conflict is impacting the industry, with the Russia-Ukraine war resulting in more than billions in losses for the reinsurance market. The Baltimore bridge collapse could further add up to $4 billion in reinsurance losses.
What’s covered? And what’s not?
Typically, any damage to a home caused by an unforeseen event, weather event, or accident should be covered by a homeowners policy. This includes windstorms like hurricanes, tornados, and derechos. It also includes fire and smoke damage, whether it was caused by a kitchen accident or a wildfire.
The policy covers the main structure and anything permanently attached to it. Policies also typically offer separate coverage limits for detached structures, such as detached garages, sheds, or barns.
Floods are never covered by homeowners polices, nor are earthquakes.
Water damage is only covered if it is falling from the sky or flowing from a pipe. Once it touches the ground and enters the house, it is up to a National Flood Insurance policy to protect the homeowner.
Some policies, especially ones written on the surplus market, have additional exclusions. Some limit the amount of water damage that would be covered if something like a broken pipe happened.
Other policies specifically exclude things like solar panels.
In many cases, mold damage caused by indoor hydroponic gardens might also be excluded.
Commercial use of the house is also excluded, so if there is a daycare, that needs to be disclosed, but so do things like temporary home rentals and even pool rentals. If the homeowner is making money from the home, that needs to be discussed with the agent before the policy is bound.
Despite all the coverage limitations, there are several areas of coverage many people overlook.
Homeowner’s policies protect policyholders from liability, such as if someone is injured at their house, or if the policyholder harms them in some other way. For example, if the policyholder ran off at their mouth on social media and was sued for defamation, their homeowners policy would protect them.
Medical payments are another less-commonly considered portion of the homeowner’s insurance policy that can come in handy. The medical payments component of homeowners insurance is designed to head off a lawsuit before it begins. If someone is injured on the property, this portion pays a nominal amount, with no fault assigned, to cover the immediate health care costs of guests.
Coverage typically ranges from $1,000 to $5,000 and includes expenses such as ambulance rides, emergency room visits, and doctor’s copays. The intention is that the goodwill generated by covering these costs will help prevent potential lawsuits in the future.
Another frequently overlooked portion of the homeowner’s policy protects against the loss of use of the home. Loss of use coverage reimburses homeowners if they are unable to live in their home, such as during a mandatory evacuation from a hurricane or wildfire. Loss of use pays for lodging, and in some cases, extra costs for food and clothing and other essentials while the family is displaced.
Difficult Coverage
Nobody likes to pay more for homeowners coverage, but in some areas of the country, even finding a policy in the first place can be a challenge.
Policies can be scarce in Florida and Louisiana because of hurricanes. While in California and much of the Mountain West, insurers are becoming less willing to write policies because of fire. But increasingly, much of the Midwest and farm country are facing an insurance crisis because of hail and tornedos.
Some insurers are pulling out of markets completely. Others are excluding key areas of coverage – such as windstorm or wildfire – forcing the homeowners to find secondary policies for those risks.
In some places coverage is only available on the surplus market – also called the secondary or non-admitted market. Surplus plans are written by companies that aren’t regulated by the state regulator and so aren’t backed by the state assurance fund if the insurer was to go out of business. Surplus plans also tend to offer rates that are much higher in some cases, and that exclude things that traditionally regulated policies would be required to cover.
Aside from the surplus market, the only other option these homeowners have is to purchase a policy from the state insurer of last resort, which in many cases is required by law to have the highest premium of anything else available on the market.
But even having an “admitted plan,” or one that falls under the state regulator is no guarantee of a good bargain. Regulators often come under fire for allowing insurers to increase their premiums higher than their constituents are comfortable.
However, often those regulators are in a tight spot because the alternative is watching the traditional insurance companies pull out of the market completely rather than price a policy at a point their underwriters believe will fail to cover the costs of catastrophic losses.
Insurers strive to price their policies so that they are affordable, but so they also protect the company against large losses. If the pricing is done properly, the insurer should end the year with a modest profit.
A New York times analysis evaluated profitability by insurance companies in different states.
Fueled by derechos, hailstorms, tornadoes, and even regular thunderstorms, insurance markets in states as far inland as Iowa, Arkansas, and Ohio are facing steep underwriting losses, which will likely lead to soaring premiums and/or a reduction in coverage in the near future.
Insurance X-Factors
For some homeowners, the details of their home sometimes lead to coverage issues.
When it comes to a pool, homeowners are faced with a two-factor issue. First, if the replacement cost pool is covered as part of the policy, that would increase the value of the home, and so require a higher premium.
Second, underwriters see pools as liability risks, meaning that the liability portion of the policy would also go up.
Going with the theme of liability, playsets and trampolines can also lead to higher rates.
Trampolines are tough to cover, and many policies simply exclude them or refuse to write the policy in the first place if there is a trampoline on the property.
If the insurer does allow trampolines, the liability portion of the premium will almost certainly be higher, and it is likely the insurer will impose restrictions on the trampoline, such as how many people are allowed on it at once, or it could require safety equipment be installed, such as netting to prevent falls.
Other home features, like playsets, may be required to be maintained and in good shape, or else the insurer could require they be repaired or removed in order to write or maintain the policy.
Inside the home, basements can be problematic. First, finished basements can increase the cost of coverage because the increased living area increases the value of the home, and thus the cost to repair or rebuild it after a claim.
When it comes to water damage, homeowner’s policies would only cover damage caused by things like burst pipes or malfunctioning appliances.
At the same time, National Flood Insurance Policies don’t automatically cover basements. The homeowner needs a basement-specific policy, but even that doesn’t cover much. The property coverage within the flood policy will help remove the floodwater and repair home systems located in the basement that were connected to a power source and serving the whole home, such as a furnace or a water heater.
Contents coverage within the flood policy will cover other appliances, such as washers and driers or standalone freezers, but it excludes other personal property or the actual basement finishings. In order to get coverage for things like the flooring and sheetrock, or even the furnishings for the man cave, it may require a private flood insurance policy, if one can be found.
Pets are another area that could influence policy pricing and/or availability. Many dog breeds are excluded from coverage because they are seen as a bite risk. And some will result in the policy being non-renewed. Exotic, saddle, and farm animals are typically excluded from coverage entirely.
Looking forward
Homeowners insurance doesn’t have to be all doom and gloom. There are reasons to suspect spikes in costs may be coming to an end.
For one, many insurers seem to be back to the point where their premiums are covering their expenses, so further increases may not be immediately coming. In its Q1 2024 Insurance Personal Lines Trends and Perspectives Report, TransUnion highlighted that many insurers are reaching a point where their rate increases are approaching a point that could offset past underwriting losses.
That may be showing up in the inflation data, too. According to the latest Consumer Price Index, homeowners premiums have risen nationwide by only 3.2% year over year in the most recent report.
With balanced profits and some other areas of the market stabilizing, it isn’t a stretch to hope that competition may help stabilize, if not bring down rates some in the near future.
Michael Giusti, MBA, is Senior Writer and Analyst for InsuranceQuotes.com
