More Natural Disasters Mean Higher Homeowners Insurance — for Everybody

When thousands of acres of land go up in flames, the first concern is human safety. In the recent spate of fires in the Los Angeles area, at least 29 people have died at the time of this writing — a tragedy that can’t be counted in dollars.

But property damage can. And while we won’t know the full extent of the Los Angeles fire-related insured losses for months, some firms estimate they might total more than $30 billion.

In a state where homeowners insurance has already skyrocketed (and even, in some markets, disappeared), that’s a tragedy in its own right.

And unfortunately, it’s not just California homeowners who can expect to be impacted.

Disasters drive up homeowners insurance — even in places they don’t happen

It’s not our imagination: The weather is getting worse. Along with raging wildfires, hurricanes are getting stronger and more frequent — and, as we saw with Hurricane Helene, pummelling areas that haven’t been built to withstand the resultant flooding.

Along with the sheer emotional weight of such losses, billions of dollars in property damage means billions of dollars in insurance claims. To cover their costs and stay afloat amidst increasing disasters, inflation and supply chain issues, insurance companies have been forced to hike their rates higher and higher.

Insurance is priced per customer, based on an algorithm that’s designed to estimate the risk level of the home — including factors like where it’s located and what kind of natural disasters or weather events it’s at risk for. (That’s why homeowners insurance customers in wildfire-prone areas or along coasts commonly battered by hurricanes have seen increases so steep, many have turned to self-insurance.)

But experts say at this point, the scale of the problem is serious enough that it’s not just those in the disaster-prone areas that need to worry about their rates climbing.

"It spreads in a disproportionate way," says Ishita Sen, assistant professor of business administration at the Harvard Business School and co-author of the study "Pricing of Climate Risk Insurance: Regulation and Cross-Subsidies". "Some people are bearing an overwhelmingly higher cost."

One of the reasons the study cites: state-by-state differences when it comes to insurance regulations. In some more lightly-regulated states, like Vermont and Virginia, insurers are simply allowed to charge more — and do.

This means that even people far away from floods and fires might see a concurrent increase in their premiums.

How to keep your homeowners insurance as low as possible, no matter where you live

The average cost of homeowners insurance at the national level is about $2,151 per year, or $179 per month.

Of course, your specific rate will vary depending not only on where your home’s located, but also personal factors like your credit score and claim history. (Unfortunately, if you ever need to actually use your insurance, it’s possible your rates will go up.)

But no matter where you live, rate increases shouldn’t be surprising. In 2023, 72% of policyholders saw their premiums rise — and that was before Hurricane Helene or the Los Angeles fires.

Still, the increases can be tight for some — and for others, downright unaffordable.

Shopping around for the best homeowners insurance policy really can make a difference in how much you pay. Monthly payments can add up quickly, so even a policy $30 lower might be worth calling a few companies for quotes. (That’s a savings of $360 per year.)

In addition, taking steps to safeguard your home with upgrades like hurricane windows or modernized electrical systems can make them less vulnerable in the event a disaster does occur — along with potentially scoring you a discount from your insurer.

Finally, keep in mind that you can also raise your deductible, which usually means your premiums will drop. However, when the worst does happen, you’ll want to be well insured enough to avoid financial disaster — so make sure the deductible you choose is reasonable based on your budget.