A combination of both the growing frequency and severity of natural disasters, along with rising home repair costs and other economic factors, have contributed to less affordable homeowners insurance, according to a brief from the Insurance Research Council (IRC).
The IRC, an affiliate of The Institutes, a provider of risk management and insurance knowledge solutions, measures affordability with the ratio of average homeowners insurance expenditures to median household income.
In 2020, the most recent year for which this data was available, this ratio sat at 1.93 percent, which means that US households are said to have spent an average of 1.93 percent of their income on homeowners insurance.
According to the data, homeowners insurance was most affordable in Utah, where households spent 0.92 percent of their annual income on homeowners insurance in 2020.
Meanwhile, other states that posted low expenditure-to-income ratios in that year included Oregon, Wisconsin, Washington and New Hampshire.
It was also revealed, that the least affordable states in 2020 included Louisiana at 3.84 percent, Florida, Oklahoma, Mississippi, and Alabama, in that order.
It is important to note, that homeowners affordability is determined by cost drivers, which can vary in difference from state to state. These drives include the number of claims paid, the average claim payment, weather and other natural hazard risks, and other perils which a home insurance policy covers, such as losses due to theft and vandalism.
As a result, trends in these cost drivers has led to less affordable homeowners insurance countrywide, with average premiums said to be growing faster than personal income over the past 20 years.
The expenditure share of income averaged 1.54 percent in the 2000s and then rose to an average of 1.99 percent in the 2010s.
However, this measure did drop slightly in 2019 and 2020, but the data that is currently available does not address the more recent increases in insurance costs.
Further, across some states, deteriorating affordability has been coincided by crises in availability, as a variety of insurers have responded to these challenges by either reducing their exposure or withdrawing from specific markets entirely.
Dale Porfilio, president, IRC, commented: “By examining what’s driving up the cost of claims, insurers and policymakers can identify opportunities for improving both the affordability and availability of homeowners insurance nationwide. At the same time, insurers must be able to price their policies to reflect the risks they’re assuming.”
