Rising homeowners insurance rates are a killer deal
“I definitely notice it Congress show more interest in reforming the National Flood Insurance Program (NFIP), given that we are not only seeing repeated disaster supplements being written for uninsured losses, but also just the use of the NFIP. And it’s ramping up and hitting his ceiling and his borrowing authority,” Carroll added.
“Much of the system is designed to clean up after the fact, rather than thinking about whether we could just spend more on mitigation, and build more public-private partnerships at the community level…. giving homeowners more options to weatherproof and climate-proof their homes, or natural disaster-proof their homes.”
Resources were stretched thin
Danny Thompson, vice president and co-owner of the San Antonio-based company Goosehead Insurance Sexton-Thompson Agencysaid he has felt the searing effects of rising premium costs. The owner of a ranch in Plano, Texas, built just four years ago, said his premium rose from $300 a month to more than $500. Extreme weather, such as high winds and hailstorms, have stretched Thompson’s wallet.
“Rates have increased, in some cases by 22% to 23%,” Thompson told HousingWire. “The reality is that in some cases it has doubled or tripled.”
Thompson noted that this problem started with pandemic-related supply chain delays. “If a house burns down, it usually takes six months to rebuild it,” he explains. “But during the pandemic, materials lasted three months, labor was supported and prices rose.”
As an example, he shared a case where it took 13 months to rebuild a condominium that burned down in 2021, increasing the insurance payout due to loss of use.
Supply chain issues have put pressure on insurance companies. As high rates deter buyers, insurers have become pickier about which homes and zip codes they cover.
“Insurers are becoming more granular in their assessments and they’re looking at everything: the age of the roofs, the proximity to fire lines and fire departments, and they’re assessing those differently,” Thompson said.
He told of a case in which a buyer received a quote of $1,300 to $1,500 per year for a house. He ultimately chose another home away from a fire station, bringing the premium to $400 per month. “He couldn’t afford that house and it would take a week to close,” Thompson said.
Thompson describes himself as an optimist and thinks insurance rates will drop in the future.
“It’s the new normal. We have received reports that rates are falling, but they have risen so much that it does not feel like a drop. But they have to keep rates high to be profitable,” he acknowledged. “If companies leave Texas altogether, the pressure will increase on everyone else to insure high-risk homes.”
Meanwhile, in the West…
The pressure is also great in other parts of the country. Paul Scalone, a San Diego real estate and insurance agent, said he has witnessed first-time homebuyers take a big hit.
“I think the demographic is more sensitive to price changes than some of the more established, affluent buyers,” Scalone said. “The average cost of a home in San Diego is just over or under a million dollars, give or take. You have an interest rate of almost 7%, so you’re looking at an average payment of $7,000 per month. Then you now add your taxes on that purchase price, and your insurance on top of that.”
Scalone has been an agent since 2019 and opened his own insurance company, Worthy. Insurance servicesin March. He said he has not lost any deals due to high or unexpected premiums, which he attributes to education.
“Many of the credit professionals I work closely with have been well trained,” he said. “They’re starting to calculate their estimated insurance payments higher than they were a year or two years ago.
“That said, if we look at a single-family home in 2019 — let’s say 1,500 square feet in San Diego — it will cost you $1,300 a year. Now, fast forward to 2024, almost 2025, that same house is going to cost between $2,100 and $2,500 a year,” Scalone said.
James Kleimann contributed to this story.
