The increasing frequency and severity of natural disasters, coupled with escalating home repair costs and other pressures, are pushing homeowners’ insurance out of reach for many Americans, according to a new report from the Insurance Research Council (IRC).
The IRC evaluated affordability using the ratio of average homeowners’ insurance expenditures to median household income. In 2020, this ratio stood at 1.93%, meaning that, on average, US households spent nearly 2% of their income on homeowners’ insurance.
Utah ranked as the most affordable state, with households spending 0.92% of their annual income on homeowners’ insurance in 2020. Other states with low expenditure-to-income ratios included Oregon, Wisconsin, Washington, and New Hampshire.
Conversely, Louisiana topped the list of the least affordable states, with a ratio of 3.84%, followed by Florida, Oklahoma, Mississippi, and Alabama.
Homeowners’ affordability is intricately tied to various cost drivers that differ from state to state, according to the IRC report. These factors include the number and average amount of claims paid by insurers, exposure to weather and natural hazard risks, as well as coverage for perils such as theft and vandalism.
Additional pressures stem from insurers’ expenses related to processing, investigating, and litigating claims, as well as the percentage of homeowner’s claims involving litigation.
Over the past two decades, trends in these cost drivers have led to a nationwide decrease in homeowners insurance affordability. Average premiums have outpaced personal income growth, with the expenditure share of income averaging 1.54% in the 2000s and increasing to 1.99% in the 2010s.
In states like California, declining affordability has been accompanied by availability crises, as some insurers respond to challenges by reducing exposure or withdrawing from specific markets entirely.
Commenting on these findings, IRC president Dale Porfilio emphasized the importance of examining the cost drivers to improve both affordability and availability.
“By examining what’s driving up the cost of claims, insurers and policymakers can identify opportunities for improving both the affordability and availability of homeowners insurance nationwide,” said Porfilio. “At the same time, insurers must be able to price their policies to reflect the risks they’re assuming.”
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