Homeowners insurance premiums are rising amid mounting weather-related losses

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Homeowners are feeling the financial sting of higher insurance premiums as firms offering homeowners insurance policies look to mitigate mounting losses from weather-related incidents and inflation that have cut into profits, according to a new report by Moody’s.
The report found homeowners insurers have, on average, paid out more in claims than they’ve received in premiums, with the so-called combined ratio reaching 101.3% over the last decade and topping 100% each year since 2020.
To preserve profitability amid mounting costs, insurers have increased premiums charged to homeowners.
That came a year after Hurricane Ian caused an estimated $52.5 billion in insured losses, according to Aon.
Inflationary pressures in construction and labor costs have risen in recent years, contributing to the dilemma facing insurers and homeowners.
PERCENTAGE OF US MORTGAGES CONSIDERED ‘SERIOUSLY UNDERWATER’ RISES The report also notes that “changes in claims settlement practices and litigation are driving up claims costs.”
Most homeowners insurance policies are renewed annually and may be subject to regulatory approval for rate increases, which creates a lag between increases in claims costs and insurers having an opportunity to adjust their pricing.
Some insurance firms have limited their operations or stopped offering homeowners insurance policies in disaster-prone areas as a means of stemming losses, though that creates more difficulties for homeowners looking to protect their homes from catastrophe.

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As companies that provide homeowners insurance policies attempt to mitigate growing losses from weather-related incidents and inflation that have cut into profits, homeowners are feeling the financial pinch of higher insurance premiums, according to a recent Moody’s report.

The study discovered that homeowners insurance companies have, on average, paid out more claims than they have been paid in premiums. The so-called combined ratio, which has topped 100 percent annually since 2020, has reached 101.3% over the past ten years. In the face of rising costs, insurers have raised the premiums they charge homeowners in order to maintain profitability.

“Most of the country has seen double-digit rate increases in the last five years (2019 to early 2024),” Evelyn Ocas Salazar, AVP-analyst for Moody’s Ratings’ Financial Institutions Group, told FOX Business. With the higher end of the scale in areas more vulnerable to weather-related risk, 80% of the nation experienced double-digit rate increases of up to 30% in 2023. “.

Storms that caused damage and the growing cost of the materials required to rebuild and repair damaged properties have been largely blamed for the increase in payouts.

A rise in home insurance premiums is placing additional pressure on Americans to face inflation.

Property and liability insurers reported losses from severe storms totaling $58 billion in 2023; Moody’s noted that this amount exceeded the previous record set in 2020 as well as the 10-year average. That was one year after Aon estimated that Hurricane Ian resulted in $525 billion in insured losses.

The problem that insurers and homeowners face is exacerbated by inflationary pressures in labor and construction costs, which have increased recently.

Since 2018, the average hourly wage has increased by more than 20%. In contrast to 2018, construction materials costs increased in 2021 and continued to rise above 40% of the producer price index. This was after they had been mostly tracking labor costs.

Prior to the start of 2020, US home prices have dropped by 47%.

The population growth in most disaster-prone areas in recent years has increased the number of homes in those areas, which contributes to higher homeowners insurance payouts in those areas.

Moody’s observed that from 2019 to 2023, Texas’s population increased from 28.9 million to 30.5 million, while Florida’s population increased from 21.5 million to 22.6 million. California’s population decreased from 39.4 million to 39 million during that time. In other states, such as Colorado, Louisiana, and Oklahoma, population changes were negligible.

RISE PERCENTAGE IN THE US THAT IS CLASSED AS “SERIOUSLY UNDERWATER”.

Additionally, the report states that “Claims costs are rising due to changes in litigation and claims settlement practices. The majority of homeowners insurance policies are renewed yearly and may require regulatory approval for rate increases, meaning that there is a delay between increases in the cost of filing claims and the time it takes insurers to modify their rates.

To reduce losses, several insurance companies have scaled back operations or ceased to provide homeowners insurance policies in disaster-prone areas; however, this makes things more difficult for homeowners who want to safeguard their homes from disaster.

Salazar stated, “There has been a pullback in capacity.”. “Businesses are restricting their expansion or giving up on certain markets where they are unable to generate the expected returns. This is particularly true in California, where the rating procedure is far more difficult. To rebalance their exposure, major players in the state reduced capacity or restricted new business. “.

Some insurers have moved their operations to the excess and surplus market, where they can more freely determine rates according to the particular risks that each policyholder faces.

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