Private Property

December 2022

Home Insurance Outlook For 2023

Inflation and extreme weather are expected to deliver another blow to home insurance costs in 2023.

    Private Property

    Credit: State Farm

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    Over the previous two years, home insurance premiums have gone up.

    The Insurance Information Institute estimates that the average cost of homeowner's insurance increased by 9% in 2021, outpacing the 7% growth seen in the previous year. Homeowners might expect more of the same in 2023.

    Here are some predictions for the following year regarding homeowners insurance.

    The Consumer Price Index increased by 7.7% over the 12-month period that concluded in October 2022.

    The indicator spiked early in the year, rising a startling 9.1% in the year that ended in June. That increase was the largest in forty years.

    These rising expenditures and escalating home insurance claim expenses are putting pressure on home insurers.

    Inflation directly affects home insurance costs because, in the words of Tom Larsen, assistant vice president of hazard & risk management at CoreLogic, "the bulk of policyholder premium is spent on repairing and restoring property."


    Home insurance premiums will increase in 2023 as a result of labor and building material cost increases, according to George Hosfield, senior director and general manager for home insurance at LexisNexis Risk Solutions.

    As we move ahead to 2023, Hosfield predicts that insurance prices will continue to rise, mostly due to inflationary factors.


    Issues in the Supply Chain Continue to Cause Concern


    At the height of the Covid-19 outbreak in 2020, supply chain problems led to interruptions as lockdowns, labor shortages, and delivery bottlenecks left shelves empty and sent Americans scrambling for essentials like paper towels.

    These concerns with requirements are mostly resolved, but building material supply chains continue to be problematic. Home insurance claims, building expenses, and rates are all rising as a result of these supply chain problems.


    According to Mark Friedlander, a representative for the Information Information Institute, rising replacement cost values for homes will be the main factor influencing home insurance rates in 2022 and should continue through 2023. He also notes that the cost of replacement value is rising twice as fast as American inflation.

    "The supply chain disruption and increases in building materials and labor are to blame for the increased replacement cost. Throughout the pandemic, this has been a rising trend, notes Friedlander.

    Weather extremes increase risk


    According to a recent LexisNexis Risk Solutions analysis, claims for extreme weather-related events will contribute to a 7% increase in the cost of house insurance claims in 2021.


    According to the study, between 2020 and 2021, weather-related insurance claims for water damage surged by 329%, and claims for catastrophic events grew by 222%.

    While Colorado and Nebraska experienced the greatest average loss expenses over the past seven years, Louisiana and Texas experienced the largest home insurance losses.

    Two Category 4 storms struck Louisiana in 2020 and 2021, Laura and Ida, resulting in more than 800,000 property claims and $22 billion in insured losses. These losses, according to Friedlander, caused "turmoil in the state's house insurance market."

    In 2022, Hurricane Ian devastated a portion of Florida and dealt the state's house insurance industry another blow. The second-largest insured loss occurrence in U.S. history, behind Hurricane Katrina in 2005, according to Friedlander's estimate from the Insurance Information Institute, which may exceed $60 billion in insured losses. According to Friedlander, these losses will raise the cost of homeowner's insurance in Florida and the Gulf Coast states by 2023.


    Florida has more than 75% of its population living in coastal areas. Other coastal states around the eastern shore, according to Friedlander, are experiencing comparable population changes, making them more susceptible to weather-related house insurance claims.

    Not just hurricanes are to blame for issues with home insurance. Home insurance claims of billions of dollars have been made as a result of freezes in Texas, wildfires in California, and tornadoes and storms in the Midwest. According to Larsen, since it takes home insurance companies a year to adopt new rates, weather-related losses in 2022 might not have an impact on home insurance premiums in such locations until 2023.

    Stretched: "Insurers of Last Resort"


    The house insurance industry has faced challenges due to a variety of circumstances, prompting significant rate increases. The state insurance departments must receive a rate increase request from insurers and approve it.


    According to Hosfield, insurance companies won't issue new policies if they can't obtain the rate that will enable them to remain sustainable.

    Many insurance companies have shut down, ceased offering brand-new policies, or left high-risk states. Millions of policyholders are now using their state's default home insurer as a result of this trend.


    Eleven small regional insurers in Louisiana failed as a result of weather-related claims. Twelve other insurers have already left the state, while more than fifty more have stopped taking on new clients in hurricane-prone regions. Since January 2021, the number of policyholders at Louisiana Citizens Property Insurance Corp., the state-run insurer of last resort, has tripled, according to Friedlander.

    For the 114,000 homeowners covered by Louisiana Citizens Property Insurance, regulators in Louisiana recently approved a startling 63% average rate increase. Current Citizens policyholders won't be impacted by the rate hike unless they renew their policies after January 1, 2023. According to Friedlander, private home insurance firms may follow suit by raising their own rates significantly.

    After numerous house insurance firms went out of business or stopped offering policies in the Sunshine State, Florida's state-run insurer of last resort, Citizens Property Insurance Corp., saw the number of its customers increase to over 1 million.

    Florida has issues that go beyond the weather. The house insurance market was unstable due to fraud schemes involving roof replacement claims and an overabundance of lawsuits against insurers. Last year, Florida saw the filing of over 80% of all property claim cases in the United States. No other state, according to Friedlander, including California, which has roughly twice the population of Florida, had more than 3,600 property claim litigation in 2021.

    The Insurance Information Institute estimates that Hurricane Ian legal costs might total $20 billion, placing further on on small, regional insurers that may go out of business.


    Florida approved a home insurance rate rise in 2022 of an average 6.4%, which was less than what Citizens wanted (11%), the state-run insurer of last resort. Friedlander issues a warning that Citizens Property Insurance may have trouble as a result of the lower average increase, particularly given that Citizens is anticipated to grow to 1.5 million customers by 2023.

    According to Friedlander, "the company's risk exposure is continuing to rise as a result of the volatile private market and the limited consumer choices."

    Beyond the Gulf Coast, California's FAIR plans (Fair Access to Insurance Requirements), a grouping of insurers that offer safety net coverage, has seen an increase in the number of its policyholders. According to the California Department of Insurance, the number of FAIR Plan policies increased by 49,049 in 2020, reaching a record high of 241,466 in 2021.

    It's not good for policyholders when there are fewer insurers selling policies and more homeowners are dependent on safety net home insurance coverage.


    Less options for policyholders are typically associated with rising rates, according to Larsen