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Insurance premiums skyrocket amid climate crises

Insurance premiums skyrocket amid climate crises

Skyrocket Premiums

Homeowners across the country are facing a new reality as insurance premiums rise and coverage becomes harder to secure. The insurance crisis, which began in Florida and California, is now spreading to other states, fundamentally changing the residential and commercial real estate markets. Insurance companies are responding to more frequent and severe climate events by drastically increasing rates, reducing risk profiles, or severely limiting new business.

Some carriers are doing all three. This follows several years of significant losses for the insurance industry due to natural disasters. Florida, hit by three major hurricanes in two years, has seen policyholders paying increasingly higher premiums.

Multiple carriers have either left the state or gone out of business, pushing more people toward the state’s insurer of last resort, Citizens. California has also been hard-hit, with at least eight carriers leaving the state or limiting their exposure.

Insurance rates surge amid climate crises

The state’s insurer of last resort has seen a 14% jump in policyholders this year alone and a 137% increase since 2019. The crisis is affecting both residential and commercial real estate transactions. Bill Baldwin, owner of Boulevard Realty in Houston, noted that insurance companies are issuing late-game demands that derail transactions, such as requiring new roofs or tree removal.

Ross Markowitz, director of insurance risk management at AEW Capital Management in Boston, emphasized the need to educate internal teams about the changing insurance landscape and its impact on deal pricing. The problem is particularly acute for businesses, as high insurance rates make it more difficult for companies to recruit and retain a workforce, according to John Boyd, Jr., a site selection consultant with The Boyd Company. Some experts hope that the rate increases may level off in 2025 if the rate increases, risk reductions, and claims mitigation efforts are successful.

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Meanwhile, states like Florida and California are enacting reforms aimed at curbing lawsuits and facilitating insurers’ approval for rate increases. Real estate brokers are advising clients to secure insurance early in the process to avoid potential pitfalls. As the threat of more frequent and severe natural disasters looms, the cost of home insurance is expected to continue rising in several states through the rest of 2024.

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