Insurance costs in the US are rising due to climate change and state regulations

It is no news that we have been locked down for the past few years “hard” insurance marketFaced with billions in settlements and rising costs for their own insurance (known as “reinsurance”), insurers have raised premiums, cut coverage, and added numerous exclusions. These changes have forced boards of cooperatives and housing communities to control insurance costs while ensuring your property is adequately insured.

Now, according to a new, large-scale nationwide study conducted by New York Timesyou can add two more factors to the recent increase in home insurance costs. The first is climate changewhich tends to cause the biggest increases in insurance costs in parts of the country most exposed to extreme weather. Second, insurance rates don’t always rise or fall with risk levels or property values.

The large difference in insurance premiums seems to be due to the actions state officialswho have the authority to approve or deny rate increase requests from insurers. Some states use this authority to keep rates low, while others use it almost entirely. Homeowners in states with more controls, such as California, tend to pay less than those in states with a hands-off approach, such as Oklahoma.

Glen W. MulreadyOklahoma’s elected insurance commissioner has never used his authority to deny a rate increase requested by an insurance company for homeowners insurance. He said he believes competition, not regulation, is the best way to keep prices low. Maybe not. Oklahoma is the sixth most expensive state for homeowners insurance.

The typical American household paid 2530 dollars in home insurance premiums last year, up 33% from 2020 — and nearly twice the rate of inflation, a sore point for most Americans. In Manhattan, where home values ​​far exceed the national average, the typical homeowner paid 7941 dollars in the case of insurance in 2023, by a huge amount 87% from 2020. This is also 433% more than in other counties with the same level of risk.

“Families with the same level of risk exposure pay completely different amounts to protect themselves from harm,” says one researcher, Benjamin Keysprofessor of real estate at the Wharton School of the University of Pennsylvania. “It just seems unfair to have different prices for the same risk.”

Ishita SenHarvard professor found that after insurance companies suffer big losses in states with tight regulations, they tend to raise rates in states with looser regulations. That suggests the companies are taking advantage of homeowners in some parts of the country to subsidize the costs of disasters elsewhere. Insurers deny that.

But there’s no denying that the country’s distorted insurance rates can encourage potentially disastrous decisions. Artificially low rates can encourage people to build, buy and stay in dangerous areas. The way the home insurance market currently works, Sen says, “encourages all kinds of crazy behavior.”