Home insurance rates: Round and round they go. Where they stop, nobody knows

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Published Date 7/17/2024

Unchecked. Unabated. Both words describe what appears to be happening with rate increases in the home insurance industry as they push for weakened consumer protections—and are increasingly getting what they ask for.

Realtor’s Jean Eaglesham reports that Florida is increasingly making it harder for consumers to sue these companies — the most expensive in the nation for home insurance. She says the average premium there last year was $3,340—roughly double the national average, according to the Insurance Information Institute.

“State regulators across the U.S. appear to be buckling to industry demands for fear that insurers will pack up and exit their regions, leaving residents with few coverage options,” says Eaglesham. “In the last 12 months alone, one state has decided its regulator can no longer veto rate requests and another has made it easier for insurers to reduce storm coverage. A third has agreed to expand the types of costs companies can take into account when setting rates.”

The ten states where regulators can reject requests upfront have all green-lighted double-digit increases since the start of last year, with half those increases close to or above the 20% national average, the S&P data show. Even California, which for decades kept a tight lid on home-insurance rates, has approved an average 21% rate increase over the period, according to the S&P data.

Consumer advocates agree this can harm state economies, as a way of extracting concessions on prices or policies, and California is already showing the damage the industry can inflict: A massive retreat by companies has left many homeowners struggling to get private coverage.

It has been said that things begin in the West and migrate eastward. Eaglesham quotes Douglas Heller, director of insurance at the Consumer Federation of America: “Insurers are exporting their bullying tactics from California to other states,” The companies are saying to state regulators and lawmakers, ‘We can wreak havoc on your economy if you don’t play ball with us.’”

The stats? Insurance giant State Farm last month asked California regulators for a 30% rate increase for homeowners, barely three months after a 21% increase came into effect. State Farm requested a rate-control exemption reserved for insurers in financial trouble. The unit racked up an underwriting loss of $2 billion and almost halved its capital in the five years through last year, according to firms who keep track. A State Farm spokeswoman said the unit is “working toward its long-term sustainability in California.”

Of course, the industry denies using threats to get its way, claiming it comes down to the cost of doing business. “Claims of ‘bullying’ grossly distort insurers’ commitment to working constructively with regulators,” said insurance industry spokesman Justin Hakes — in light of home insurers racking up a $16 billion underwriting loss last year. It expects losses to continue.

While inflation, a climate-change-fueled rise in natural disasters and population shifts to high-risk areas are all pressure factors, insurers appear to have turned a corner more recently and have reported healthy quarterly profits, boosted partly by recent policy rate increases. But how much is enough?

Many state regulators are in a weak position to push back on industry demands, making home insurance markets unstable. “In Louisiana, where back-to-back hurricanes have sent insurers rushing to the exits, lawmakers this spring axed a rule making it hard for companies to drop customers of three or more years standing,” says Eaglesham. “They also ended the insurance commissioner’s right to veto rate requests upfront.”

Insurers in other states, such as Arkansas, are being allowed to reduce hail and wind coverage after storms caused big losses, regulator Alan McClain told legislators earlier this year. That doesn’t mean insurers are getting everything they want, however. “Regulators can give insurers informal feedback on their rate requests, which might prompt them to lower what they ask for,” says Eaglesham. “California regulator Lara last month unveiled plans to require insurers to sell more policies in wildfire-prone areas. The proposal is a trade-off to allowing insurers to boost rates to reflect reinsurance costs and anticipated losses from future disasters.”

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