Homeowners are in for more financial stress in 2023 as insurance rates are set to rise.
Experts at Insurify, a virtual insurance company, predict that home insurance rates will rise 9% in 2023, from $1,636 to $1,784. That’s on top of last year’s 7% jump.
Repairs are more expensive thanks to increased material costs. Just as auto rates are impacted by inflation, home insurance rates follow market trends for materials and labor.
“The same inflationary pressures that are driving up your grocery bill are now driving up your homeowner insurance rates,” Colleen Finn, managing director of home product management at Plymouth Rock, a Boston-based insurer, said.
“It is costing more and taking longer to repair your home, increasing the average cost per claim and ultimately the cost of homeowners insurance for everyone.”
Climate change is a major reason for rate increases as well. As natural disasters become more common, insurance companies make up for the higher likelihood of repairs in homeowners’ bills.
The Federal Emergency Management Agency assigns a risk rating denoting the probability and severity of natural disasters across the United States. Homeowners located in “very high” risk areas pay almost 2.5 times more for insurance than those living in areas of “very low” risk.
Every additional point in a county’s FEMA risk index leads to an extra $24 in annual home insurance premiums.
This helps to explain why four of the top five cities with the most expensive insurance rates are in Florida. Homeowners in Hallandale Beach, Hialeah, Miami, and Lake Worth all pay more than $10,000 a year to protect their houses.
CoreLogic says that severe convective storms– straight-line winds, tornados, hail, and severe thunderstorms, for example– are the biggest cause of weather-related property damage in the U.S., and will worsen as the planet warms further.
FEMA officials rank Texas, Florida, Louisiana, and North Carolina among the states that are most likely to have disasters that threaten buildings, people, and agriculture.
Still, American homebuyers are leaving less risky regions and flocking to these states, lured in by warmer winters, work opportunities, or more affordable housing. Every one of the states with the most building permits issued in 2022 is in the South or West, and all face significant risk from climate-related damage.
“People have been gravitating to places with severe climate risk because many of these areas are relatively affordable, have lower property taxes, more housing options, or access to nature,” Redfin Economist Sebastian Sandoval-Olascoaga said of the trend.
“For a lot of people, these benefits seem to outweigh the dangers of climate change. But as natural disasters become more frequent, homeowners in these areas may end up losing property value or face considerable difficulty getting their properties insured against environmental disasters.”
Jesse Keenan, a Tulane University associate professor who studies climate change adaptation, predicts that 50 million Americans could eventually move to areas like New England or the Upper Midwest to escape climate disasters, and that may happen before 2050.