Frequency and severity of natural disasters, economic conditions, rising construction costs and litigation over the last 20 years have been the drivers of homeowners insurance becoming less affordable, according to a recent report.
The Insurance Research Council (IRC), a division of The Institutes, found that in the 2000s homeowners spent 1.54% of their household income toward insurance.
The figure rose to an average of 1.99% in the 2010s, and in 2021, the latest year for which expenditure data is available, spending on homeowners insurance was 1.99% of household income.
In the US average expenditure on homeowners insurance increased from $508 in 2001 to $1,411 in 2021, a 5.0% annualised rise.
In comparison, US average household income increased more moderately, with an annualised growth rate of 2.5% from 2001 to 2021.
IRC’s analysis looks at homeowners insurance affordability at the countrywide and state level and examines underlying cost drivers by state, but it does not address affordability for specific demographic or geographic risk profiles.
Regarding affordability per US state, research found Utah as the most affordable, with consumers spending 0.96% of their income on homeowners insurance.
On the other hand, it was found that Florida is the least affordable state, with consumers spending 4.07%.
Additionally, looking at rankings over the past five years, Florida and Louisiana have consistently maintained their positions as the least affordable states, analysts noted.
Individual premiums can vary significantly, depending on several factors, including home location, its value, coverage options, previous claims history, and insurance company
The impact of underlying cost drivers varies widely by state. Exposure to significant weather events differs significantly and plays an important role in the cost of insurance.
Other issues that also affect overall affordability include non-weather events, claiming behaviour, and the litigation environment.
Analysts pointed out that, while the most recent expenditure data is available only through 2021 and does not reflect the newest increases in personal insurance rates, it provides an insightful analysis of trends in homeowner insurance affordability.
“An understanding of what drives the cost of insurance is essential for consumers navigating the current insurance market,” said Dale Porfilio, president of the IRC and chief insurance officer at the Insurance Information Institute (Triple-I).
He added: “Efforts to promote homeowner awareness and adoption of protective measures, strengthen state and local building codes, and encourage community resilience programs can all improve insurance affordability.”
Porfilio also noted that the IRC’s Affordability Index can be used to compare the affordability of homeowners insurance in different states.
Stating: “Homeowners insurance in the U.S. is regulated at the state level, so these comparisons and underlying cost drivers can provide legislators and policymakers with valuable information to help them improve affordability in their states.”
