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CNN
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With New Orleans' home insurance market collapsing, Alfredo Herrera has few coverage options and premiums are rising.
Mr. Herrera, 35, works in the finance department of a local bank. He bought a 900-square-foot home in New Orleans' Mid-City neighborhood for $270,000 in 2020 and lives there with his partner.
In 2022, he paid $1,600 a year for home insurance. But last July, his insurance company canceled his insurance, saying it was pulling out of Louisiana.
Provided by: Victoria Zangara
Alfredo Herrera (right) and his partner in New Orleans, Louisiana in 2021.
In the past, getting or maintaining homeowners insurance wasn't a big problem.
However, as climate change increases the frequency and intensity of extreme weather events, insurance companies, especially those in areas most affected by floods and fires, are raising premiums or withdrawing altogether. Affecting the affordability and availability of insurance.
Herrera looked around for a new plan, but had trouble finding direction. Louisiana Citizens, the insurance company of last resort for property owners in the state, was out of the question. That would cost more than $7,000 a year.
Herrera eventually found insurance with a small business in the state that charged $4,930 a year. This was a 208% increase over the amount he paid in 2022.
“It's a very difficult situation,” he said. He never imagined when he bought the house, With such limited options for private insurance, your last insurance company will likely be very expensive.
“We are facing a wall,” Herrera said. “There's no competition.”
everyone is paying more
Herrera's insurance story is common in Louisiana and other parts of the country where the risk of extreme weather events is increasing.
According to the National Oceanic and Atmospheric Administration, there were 28 weather and climate disasters in the United States last year, resulting in record losses of more than $1 billion. By comparison, from 1980 to 2023, the typical annual average for these events was 8.5.
A Louisiana State University study last year found that 17% of Louisiana homeowners reported their provider canceled their insurance policy. According to the survey, 63% of policyholders said their insurance coverage costs had increased compared to the previous year.
Mark Friedlander, a spokesman for the Insurance Information Institute, a nonprofit industry group, said the cost of insurance for homeowners in the U.S. rose about 10 to 12 percent last year.
The main driver is the increased costs faced by insurers, including from more severe storms. Replacement costs will be high. Reinsurance is a type of insurance used by insurance companies to limit risk. These are passed on to the consumer. Therefore, even if a homeowner does not live in a high-risk area, he or she is likely paying higher premiums to cover those living in the highest-risk areas.
In 2023, Neil Fernandez paid $1,700 a year for Farmers Insurance on his home in Santa Clarita, California. This 42-year-old software engineer lives with his wife and child.
But last year, Farmers announced it was increasing premiums to $3,200. When asked why, Farmers cited rising costs and an increased risk of fire in the state. Fernandez said the fire risk around his home remains unchanged and he lives 400 meters from a fire station.
He started looking for other insurance, but his options were limited.
Frustrated by his lack of options, he switched to AAA home insurance for $2,880 a year.
He and his family had to change their lifestyle to cover the increase. He drives less to save on car insurance. They eat out less, travel less, and put off home renovations.
Mr. Fernandez disputes AAA's assessment of the value of his home insurance, saying it is an overstatement.
AAA did not comment to CNN.
and he is more worried about home The future insurance price shock was something he hadn't anticipated when he bought the house.
“As a homeowner, I always worry about things like paying taxes to maintain good schools and communities,” he said. “Now I have to worry about insurance coverage.”
In some regions most exposed to climate change, insurance companies have stopped issuing policies.
State Farm, California's largest home insurer, announced in May that it would suspend issuing insurance in the state due to wildfire risks. Farmers Insurance has decided that it is too risky to continue insuring homes in Florida and has withdrawn from the Florida market altogether.
David Swanson/Reuters
Firefighters respond to the Sycamore Fire in Whittier, California in 2022. Insurance companies are pulling out of California due to the risk of wildfires.
State Farm announced on March 20 that it would not renew 72,000 home insurance policies in California, representing just over 2% of its policies. The company cited “exposure to inflation and catastrophic events.” [and] The reason for this is reinsurance costs.
More and more people are flowing into state-backed “insurance companies of last resort,” where they typically have less coverage and have to pay more.
As companies exit, more states are launching state-backed insurance companies.
In Florida, the number of policies issued by Citizens Property Insurance increased by approximately 50% to 1.3 million in the last year alone. This represents 16% of the market and is far more than recorded by any national insurer in the state.
The U.S. Senate Budget Committee is launching an investigation into whether Florida's government-backed home and property insurance company has enough money in the bank to withstand future disasters.
But climate change is not the only factor driving up costs. Insurers also point out that the cost of replacing a home is rising due to skyrocketing inflation in building materials and labor.
Reconstruction and replacement costs jumped 55% between 2019 and 2022, according to the insurance industry. However, costs have since declined. After years of losses, reinsurance is up 30% to 40%, said Matthew Carletti, an insurance industry analyst at JMP Securities.
Jim Watson/AFP/Getty Images
Housing construction costs are rising, and insurance premiums are also rising.
Homeowners with mortgages cannot live without homeowners insurance because their mortgage servicer requires an escrow account for insurance. However, for those who have paid off their home or purchased it with cash, the high additional cost of homeowners insurance and the difficulty of obtaining insurance may lead some to take a chance without insurance. not.
According to a report by the Consumer Federation of America, approximately 6 million homeowners choose not to purchase homeowners insurance. This represents approximately 7.4% of all homeowners in the country and approximately $1.6 trillion in unprotected value.
The CFA warned that the problem of uninsured housing is likely to worsen in the coming years unless there is significant investment in climate change adaptation and stronger oversight of the insurance industry.
Diana Troxell and her husband don't know how to pay the 250% annual premium increase on their home in rural Cottonwood, California. Currently, they receive help from their families for groceries and gas.
Troxell, 76, works seasonally as a face painter at the county fair. She and her husband rely primarily on social security to survive.
They have lived in the home for 19 years and have it insured by Foremost Insurance, paying them about $1,910 a year.
However, Foremost said last year that the policy would not be updated due to the bushfires.
Provided by Diana Wright Troxell
Diana Wright Troxell and her husband Bruce at their home in Cottonwood, California.
“We were in a state of shock,” she said. “We didn't know what to do.”
They tried selling their house and renting in California, but couldn't afford it.
With no other insurance options available, they turned to the California Fair Plan, a state program for residents and businesses unable to obtain insurance through their regular insurance carrier. In 2021, FAIR plans accounted for 3% of state policies, nearly double the amount in 2018.
Currently, they pay about $6,660 per year through the FAIR plan.
“We're in 'what are we going to do about this?' mode,” she said. “We live month to month.”
CNN's Ella Nilsen contributed to this article.
