The Future of Home Insurance: Rising Costs, Unseen Risks, and Strategies for Homeowners

With flood and tornado disasters like the Asheville and Florida on the rise and the Pacific Palisades wildfire raging, the reality of unprecedented weather events is hitting home. How they impact homeowners insurance costs are concerning to many homeowners. Homeowners and realtors alike need to understand how the insurance market is responding and revealing that homeowners insurance is often insufficient for certain events. This guide will help guide homeowners navigate rising costs, overlooked coverage gaps, and strategies to cut expenses.

The Growing Financial Impact of Climate Disasters

Rising Premiums and Declining Availability

Home insurance rates in the U.S. have risen significantly due to climate-related losses. According to a 2021 LexisNexis report, premiums have increased by 21% since 2015, with some high-risk states, like Florida and California, seeing rates more than 3.5 times the national average. Insurers are also withdrawing from disaster-prone areas, leaving residents to rely on state-run insurance pools with limited coverage and higher costs.

In 2023 alone, the U.S. experienced 28 disasters costing over $1 billion each, setting a record for economic losses. These trends, driven by intensifying hurricanes, wildfires, and floods, are pushing insurers to reevaluate their pricing models and risk thresholds.

Uncovered Risks: What Homeowners May Not Know

Flood Insurance Gaps

Standard homeowners’ insurance policies do not cover flood damage, which is typically covered under separate policies issued by the National Flood Insurance Program (NFIP). While flood insurance is mandatory for properties within FEMA-designated flood zones, those outside such areas often lack coverage, leaving them vulnerable. For instance, during the Asheville tornadoes, residents outside designated floodplains faced significant out-of-pocket expenses due to insufficient coverage. The bulk of the damage was in a 1,000 year flood plane, which is not covered by standard flood insurance either.

Cost vs. Value of Insurance

Many homeowners misunderstand the extent of their coverage. A standard policy might exclude events like sewer backups, mold damage, and landslides. Reviewing the insurance binder—the document detailing specific coverages and exclusions—is critical to understanding potential gaps. Insurers often recommend supplemental policies for specific risks, but these come at additional costs. Balancing coverage and cost, and understanding what you can do to protect your home are all essential to securing your home and investment.

How to Manage Rising Costs

Practical Steps

1. Mitigation Measures: Install storm shutters, reinforce roofing, and upgrade drainage systems to reduce risks and qualify for discounts.
2. Bundling Policies: Combining home and auto insurance can lead to lower premiums.
3. Community Programs: Participate in local flood or wildfire mitigation programs that offer insurance incentives.
4. Policy Reviews: Regularly review and compare policies to ensure adequate coverage at competitive rates.
5. Review Impound Account: Insurance impounds paid through your lender are adjusted annually and should be reviewed quarterly to be sure what you are paying is keeping up with insurance costs so you don’t receive an unexpected bill.

Policy Recommendations

Advocating for programs like FEMA’s Building Resilient Infrastructure and Communities (BRIC) can help homeowners offset costs through grants for structural improvements. Expanding public-private partnerships could also stabilize insurance markets and enhance coverage affordability.