“Sheer panic.” That’s how Teddy Mars of Louisiana felt when his homes insurance coverage was not renewed in early 2023. The final alternative left him and his family paying more for homeowner’s insurance than their mortgage.
To satisfy expenses, Mars had to delve into his nest fund and take $12,000 from his individual retirement account. “We’re not sitting on a huge mountain of cash here,”. When you have a mortgage, you cannot avoid paying for insurance.
“It’ll break my heart, but I think we’re going to have to leave,” adds Mars, who was raised in Louisiana. However, with a high school-aged kid, packing up and leaving town is not simple. Mars also worries about the saleability of his home. “Who wants to buy a house in our area when they can’t insure it?”
Mars’ experience is becoming all too familiar to Americans as climatic disasters strike the country with increased regularity and fury. When combined with inflation and a spike in motor accidents and thefts, many consumers face an affordability dilemma with house and automobile insurance.
Homeowners find themselves in a difficult situation.
Over three out of every five homes insurance policyholders report that their premiums have increased in the last year. And almost one in ten people are concerned that their insurance may quit doing business in their state.
This is a legitimate worry. In Florida, for example, private homes insurance has become so rare that Citizens, the state-funded “insurer of last resort,” has become the state’s leading property insurer in terms of policy volume.
Many homes are even avoiding insurance entirely. According to the Insurance Information Institute’s 2023 poll, 12% of homeowners do not carry homeowner insurance. Approximately half of the homeowners earn less than $40,000 each year.
“It’s a bloodbath,” says Dori Einhorn, owner of California-based Einhorn Insurance, which specializes in wildfire coverage. “I’ve never seen anything so awful.” Einhorn is alluding to the rising number of insurers who no longer write coverage in the Golden State. “As long as global warming persists, I don’t see how this is going to stop.”
Automobile insurance costs are increasing.
It’s not only homeowners insurance that is increasingly difficult to get. Car insurance firms are scrutinizing the vehicles they insure while raising the rates they charge. Just ask Gail Harlan from Florida.
He got updated insurance documentation from his insurer shortly after signing the leasing agreement for a 2023 Kia Seltos. “I was in absolute shock,” He recounts feeling after realizing she was paying far more for her new coverage than she had for her previous car.
He had been on a pay-per-mile auto insurance program with her last vehicle, a 2022 Honda CR-V. She was able to keep rates down because she did not drive a much. He couldn’t get on the same program as her new Kia Seltos, so she had to buy a standard, flat-rate insurance. So she went shopping.
Harlan received quotations from numerous insurance firms that were significantly higher than her previous rates. The highest quotation she received was more over $2,200 for a six-month insurance. One major insurance even declined to offer her a quotation, citing a recent spate of Kia and Hyundai thefts. This statement occurred despite Him showing an email from Kia stating that her 2023 Kia Seltos were not at danger for the same sorts of thefts. “I figured this was going to be easy,”
And Harlan is not alone. According to the insurance poll, more than one in every six automobile owners said that their rates had climbed significantly in the previous year. The U.S. Bureau of Labor Statistics reported that car insurance premiums increased by 19% in August compared to the previous year . Meanwhile, an increasing number of Americans are choosing not to get auto insurance.
America’s risk pool is leaking.
When you buy insurance, your premiums are combined with those of other customers. Insurers use this pool to cover claims for the unfortunate few. The difficulty is that this pool is running dry for many businesses, prompting them to refill it by hiking fees or firing employees.
Here are a few things that cause the leak:
Pricier claims. With an increase in catastrophic weather events and road fatalities throughout much of the United States, insurers are having to delve deeper into their pockets to satisfy claims. Inflation, supply chain disruptions, and labor shortages have all contributed to the fire.
The increasing expense of “reinsurance.” Reinsurance (insurance for insurers) is becoming more difficult to obtain, forcing house and car insurers to avoid high-risk areas.
Friction between insurers and states. Home and vehicle insurance are controlled by the state, therefore carriers are subject to state regulation. In Florida, for example, insurers are suffering significant losses due to an unusually high number of litigation. Many insurers have cited state-imposed rate rise limits as a rationale for leaving California.
There are glimmers of hope that insurers will be able to plug the leak, including a recent U.S. Senate hearing on the property insurance market, hints of inflation control, and Florida insurance reform.
However, many Americans who are struggling to make ends meet are unlikely to be comforted by this. LendingClub’s 2023 study found that 3 out of 5 Americans are living paycheck to paycheck.
What can you do about it?
If you’re having trouble affording insurance payments or are concerned that your insurance provider may remove you at renewal, there are six things you can do:
1. Shop around.
Home and vehicle insurance prices can vary greatly between companies. If you believe you’re paying too much, go shopping. Get quotations from at least three different businesses to ensure you are receiving the best value available. This strategy worked for Harlan, who eventually found a vehicle insurance rate she was satisfied with.
2. Seek assistance.
If you have limited insurance alternatives, it may be time to seek the assistance of an independent insurance agent. Local agents are familiar with the area and the firms that are currently issuing policies. “You need to find someone who knows what they’re doing,” Einhorn says. “Find an agent who is responsive and who’s not just looking to make a commission.”
3. Adjust your coverage.
You may save money on insurance by taking on more risk yourself. For example, you may be able to raise deductibles or discontinue optional coverages that you no longer require. Just don’t cut your coverage to the point that you’ll be financially devastated if disaster occurs.
4. Move ahead of the problem.
Insurers conduct frequent inspections on the houses they cover (or want to insure). This is particularly true for older homes in high-risk neighborhoods. Do not offer them a cause to cancel or refuse your coverage. Clear away any adjacent brush or overgrown trees to protect your property, and inspect your roof, electrical, plumbing, and HVAC systems for proper operation.
5. Do your research before you buy.
If you’re thinking about purchasing a new home or automobile, get insurance estimates before you sign the dotted line. That way, you won’t be caught off guard by an exorbitant policy that you cannot pay. You may also calculate a property’s risk of climate change by entering its address into riskfactor.com.
6. Do not let your insurance lapse.
While it may be tempting to avoid paying a high premium, letting your insurance lapse might exacerbate a poor situation. Not only would you be entirely liable for any damage to your house or automobile, but future insurers may consider you dangerous to insure. Even if you have a solid reason for the lapse, you will most certainly face increased prices when you renew your insurance. In addition, if you own a car or have a mortgage, you must carry insurance.
