Why Is Homeowners Insurance Getting So Expensive?

The recent Los Angeles fires have highlighted the rising costs of homeowners insurance in the US. Between 2020 and 2023, US homeowners insurance premiums rose 33% on average. In some places, insurers are simply cancelling policies entirely, due to a combination of rising insurance costs and state regulations that limit how much insurers can raise rates. This has driven many customers into state-backed insurers of last resort — the number of such policies has doubled since 2018, raising liabilities so much that in many cases it's unclear how the states will fund losses in the event of a large catastrophe. This situation is currently playing out in the aftermath of the LA fires, where the state-backed insurer is estimated to face $8 billion in losses against $377 million in available funding.

Rising insurance costs have led some folks to worry that the world is becoming “uninsurable”: that is, that the risk of disaster is making homeowners insurance (and thus home ownership) either increasingly unaffordable or out of reach entirely.

It’s easy to understand why insurance in some places, like wildfire-prone areas, is getting expensive or unavailable. But the broader trend of rising insurance costs can be observed in essentially every state, and it’s harder to explain. Most potential explanations don’t seem to be sufficient to explain the increase, either because the impact is too small, or because the cause wouldn’t apply country-wide. After diving into the data on homeowners insurance spending and losses, I came up with few smoking guns.

by Brian Potter, Construction Physics |  Read more:

Image: NAIC/IFP

[ed. Quite the dive, with more nuanced results than you'd expect:]