As bills go up, owners’ coverage is going down
Robert Shiver’s bill for his homeowner insurance jumped from $ 3,800 in 2022 to $ 8,000 in July. “I remember opening the bill and, honestly, laughing, like, ‘ This is not feasible,’ ” he said.
Shiver, 40, who lives about 20 miles east of Tampa, Fla., did not pay the bill.
Instead, he worked with his insurance agent to shave off parts of his coverage, lowering the estimate for how much the insurer would have to pay to potentially rebuild his house from around $ 710,000 to about $ 560,000.
Shrinking the coverage lowered his bill to slightly less than $ 5,000, a huge relief, he said, because he would again be able to make his monthly mortgage and insurance payment.
In the insurance business, Shiver might now be considered “underinsured,” meaning that his policy might not be sufficient to cover a rebuild after catastrophic losses.
Underinsurance is not a new problem, but it has become far more widespread and severe over the past three years, as rising inflation and climate change have created a highly volatile and unreliable insurance market and raised costs for homeowners — sometimes in unexpected ways.
Insurers’ losses from natural disasters topped $ 100 billion for the fourth straight year in 2023, and they are passing those costs on to property owners. High inflation also has forced insurers to raise rates to cover claims.
Some homeowners are nickel-and-diming their own coverage by forgoing protection against hurricanes or windstorms; finding ways to lower the replacement values of their properties, as Shiver did; or raising their deductibles. Others are discovering that their policies won’t fully cover the cost of rebuilding because of steep increases in the cost of materials, once disaster has struck.
Colorado’s insurance commissioner, Michael Conway, discovered the extent of the underinsurance problem after a wildfire near Boulder destroyed about 1,000 homes in 2021. After getting calls from homeowners distressed that their policies wouldn’t fully cover the cost of rebuilding, the state’s Division of Insurance investigated and found that only 8% of policies in the areas affected by the fire pledged to cover rebuilding costs no matter how high they got. It also found that one- third to two- thirds of all homes affected by the fire had been underinsured for rebuilding costs within a typical range.
To try to fix the problem, Conway and his team convened meetings late last year with insurance companies, builders and other groups to brainstorm ideas for making things easier for homeowners, but no plans have emerged so far.
“We’re very concerned about what those homeowners are experiencing with the affordability issues, and we’re absolutely sympathetic to the pressure that they’re feeling to find a way to afford their insurance coverage,” Conway said.
Julie Coffey did not realize she was underinsured until she ran out of money while trying to rebuild her house near San Francisco after it burned to the
ground in August 2020 in one of several large wildfires that swept across parts of California that summer.
It took months before Coffey even knew what she would get from her insurer. By the time she began rebuilding her house in 2021, inflation was speeding up and building supplies were scarce. Her new home is missing key features she couldn’t afford, like a water softener and fencing.
“Within one month of living here, my sink is showing signs of rust,” Coffey said. “It’s crazy all the things you need to do to try and get close to where you were without worry or thought.”
Mark Friedlander, a spokesperson for the Insurance Information Institute, a trade group, said home insurance premiums cumulatively had risen 32% from 2019 to 2023, while rebuilding
and replacement costs had gone up 55%.
Analysts for the group estimated that in 2023, home insurers experienced their biggest underwriting loss — the difference between collected premiums and paidout claims — since 2011. Behind the loss were huge storms that caused more than $ 50 billion damage that insurers had to pay for.
A survey last year by the institute and researchers for Munich Re, a reinsurer, found that 88% of U. S. homeowners had property insurance, down from 95% in 2019. Only 4% had flood insurance, even though 90% of the country’s natural disasters involve flooding.
nce insurers raise premiums, many homeowners are discovering that their lenders are willing to explore ways to make their payments more affordable.