Rising Homeowners Insurance Costs Outpace Income Growth
The average cost of homeowners insurance claims in the United States has been increasing at a rate faster than inflation over the past two decades, according to a recent research brief by the Insurance Research Council (IRC). The study, titled ‘Homeowners Insurance Affordability: Countrywide Trends and State Comparisons,’ identifies multiple factors contributing to this rise, including natural disasters, legal system abuse, fraud, increasing home repair expenses, and population shifts into disaster-prone areas.
The report reveals that homeowners insurance costs have grown disproportionately compared to household incomes, resulting in record-low affordability. ‘The pressures on home insurance costs are significant, and they’re driving premiums higher for consumers,’ said Dale Porfilio, president of the IRC. To measure the affordability of homeowners insurance, the IRC introduced an Affordability Index, which calculates the ratio of average homeowners insurance expenditures to median household income.
In 2001, US households allocated 1.19% of their income toward homeowners insurance. This percentage increased to 2.09% in 2022 and is projected to reach 2.4% by the end of 2024. ‘This steady upward trajectory signals ongoing challenges in the insurance market,’ Porfilio noted. The research also highlights geographic variations in affordability across different states.
In 2022, Utah, Oregon, and Alaska were ranked as the most affordable states for homeowners insurance, while Louisiana, Florida, Mississippi, Oklahoma, and Arkansas were the least affordable. Florida showed minor improvements compared to 2021, attributed to legislative reforms in 2022 and 2023 that resulted in fewer property claim lawsuits and a modest increase in private insurer participation. However, the IRC noted that these developments have not yet been fully reflected in the analyzed data.
State-specific cost factors driving affordability include claim frequency and severity, legal and fraud-related expenses, and exposure to environmental hazards such as hurricanes, wildfires, and hailstorms. ‘Understanding what’s driving insurance costs at the state level can help leaders make informed decisions to protect consumers and ensure continued access to essential coverage,’ Porfilio emphasized.
The findings suggest that addressing rising insurance costs will require a multifaceted approach that considers various state-specific factors and ongoing challenges in the insurance market.
