Rising threats of violent storms, exemplified by recent devastating weather patterns that swept through five states during the Memorial Day weekend, have prompted insurance companies to significantly raise the premiums for homeowners’ coverage. The aftermath of these storms, which wrought havoc in Arkansas, Kentucky, Oklahoma, Texas, and parts of Virginia, leaving a grim toll of leveled homes and claiming the lives of at least 23 individuals, underscores the mounting risks faced by insurers due to the intensifying frequency and severity of extreme weather events, increasingly attributed to climate change. Consequently, insurers are compelled to compensate for escalating payouts by hiking premiums, burdening millions of Americans with higher insurance costs.
Glen Mulready, the Oklahoma Department of Insurance Commissioner, emphasized the unavoidable reality of increased premiums to offset losses incurred from such catastrophic storms. Mulready noted a staggering surge of 42% in the price of homeowners’ coverage in Oklahoma between 2018 and 2023, according to an analysis conducted by S&P Global. Alarmingly, Oklahoma has already witnessed over 90 tornadoes in 2024, more than doubling the average count for this time of the year, compounded by the impact of two Category 4 hurricanes. Similar trends are evident in Arkansas and Texas, where homeowners’ insurance rates surged by 32.5% and 60% respectively, during the same period, as reported by S&P Global.
Scott Holeman, spokesperson for the Insurance Information Institute, elucidated that besides extreme weather, other factors contributing to the escalating costs of homeowners’ policies include mounting losses from storms, natural disasters, inflation, and supply chain disruptions. Holeman highlighted the financial strain faced by insurers, despite sharp premium increases, with homeowners’ coverage proving unprofitable in four out of the last five years.
Researchers from the National Oceanic and Atmospheric Administration (NOAA) underscored the escalating frequency and severity of extreme weather events, citing a record 23 billion-dollar weather and climate disasters in the U.S. in 2023. These events, ranging from catastrophic flooding to heatwaves, severe droughts, and massive wildfires, are increasingly linked to global warming.
The growing financial ramifications of extreme weather-related losses have compelled insurers such as Allstate and State Farm to cease renewing home policies in certain regions of California and Florida, where exposure to powerful storms and coastal flooding is pronounced. AAA also opted not to renew some policies in Florida last year. In states vulnerable to extreme weather, insurers who continue to provide coverage are implementing rate hikes. For instance, Travelers Insurance recently obtained approval from California regulators to increase homeowners’ rates by an average of 15.3%.
On a national scale, the average homeowners’ insurance premium surged from $1,081 in 2018 to $1,522 in 2023 for individuals inhabiting single-family properties with a 30-year home loan, according to Freddie Mac.
A study by the Federal Reserve in May emphasized that property damage resulting from natural disasters represents one of the most significant financial risks for homeowners. Nearly 2 in 10 U.S. adults reported financial impacts from natural disasters or severe weather events over the past 12 months, according to the study’s findings.
