As Hurricane Season Ramps Up, Insurance Providers Are Dropping Clients In High-Risk Areas

As the mercury continues to climb and the summer months warm up, Americans living along the Atlantic Ocean and near the Gulf of Mexico are preparing for what is expected to be yet another "extremely active" and potentially destructive hurricane season, with meteorologists at the National Hurricane Center expecting seven major hurricanes to make landfall in the coming months.

Last year, homeowners and residents living in what's considered "high-risk" or "active" hurricane areas witnessed the fourth-most active hurricane season on record. Experts tracked at least 20 named storms, with around seven of them becoming hurricanes while three reaching major hurricane strength.

And with experts warning of the first of several tropical storms already forming over the Gulf of Mexico, only three weeks since the beginning of hurricane season - which usually starts on June 1st - insurance companies stretched to extremes due to rising costs, inflationary pressure, and the surge in new claims are dropping homeowners located in high-risk areas.

While homeowners may be surprised to find that their insurance provider will not be renewing their policies, the news is perhaps nothing new for those working in the insurance industry.

Last year, insurance companies witnessed their net losses reach more than $101.29 billion. US homeowners insurance rates jump by double digits in 2023 | S&P Global Market IntelligenceThe surge in losses came as more homeowners submitted claims to cover the cost of repairs and rebuilding homes following a wave of destructive natural events, including floods, fires, and severe storms.

Of the 20 largest homeowners insurance providers in the U.S., only two of them managed to turn a profit last year. In a report from S&P Global, analysts found that last year was one of the worst years in the homeowners insurance industry in more than a decade.

Surging costs on the back of climate change fueling more severe weather patterns are leaving already battered homeowners' insurance companies with limited options as they once again expect another year of eye-watering losses and a record number of claims.

What about homeowners?

In mid-June, right on the heels of hurricane season approaching, several Texas homeowners were informed that their providers would not be renewing their policies, leaving many of them scrambling to take out new policies before the first storm made landfall.

Some Texas homeowners and renters are already considered to be paying among the fourth-highest home insurance rates in the country. Data suggests that the average homeowners' insurance rate in Texas was more than $4,437 per year in 2023.

Florida residents currently pay the highest, coughing out an average of $10,996 last year, while Louisiana homeowners pay the second highest insurance rates at $6,354 annually. To put things in perspective, the national average of annual insurance rates was around $2,377 last year, following an increase of 19.8% between 2021 and 2023.

The news of some being dropped by their insurance companies comes on the back of some insurance companies further pushing up rates this year following the surge in homeowners insurance prices last year.

Nationally, homeowners insurance costs rose an average of 11.3% last year, and experts predict that prices are set to increase another 6% this year, pushing the national average rate up to $2,522 by the end of 2024.

This is still relatively small compared to other high-risk states such as Florida and Louisiana which are expected to see insurance providers increase rates by an additional 7% and 23%, respectively.

For instance, in New Jersey, insurance companies have seen the cost of repairs and replacing damaged property skyrocket over recent years, with Hurricane Ida causing more than $2.02 billion in damages alone. Somerset County alone suffered nearly $165 million in losses, seeing 13,228 insurance claims filed, while Middlesex County where damages topped over $155 million, and seeing more than 14,084 claims filed by policyholders.

Just like their providers, homeowners living in high-risk or hurricane-prone areas have a limited number of options to choose from.

Historically, homeowners and residents had opted to move out of state to reduce their insurance costs or to avoid being in the path of destruction. But this isn't going to cut it anymore, as states such as Arizona, Utah, and Illinois have seen a steady rise in severe storm and hurricane damage over recent years, often outpacing the national average.

Experts from the University of Arizona's Department of Hydrology and Atmospheric Sciences expect the state to be battered once again with severe hurricanes this season, resulting in damaging winds and heavy rainfall that could lead to severe flooding.

In March, Utah residents were warned of severe hurricane-like winds sweeping across northern parts of the state, including the Davies and Weber counties.

Now with hurricane season still in the early weeks of what is expected to be yet another catastrophic year, homeowners are being forced to make alternative preparations as their insurance providers are hitting them where it hurts the most.

Where to from here?

Although homeowners insurance isn't necessarily mandated by state regulation, many homeowners tend to take up pricey insurance policies to secure mortgage loans. With insurance providers calculating the rates based on the cost of rebuilding a resident's home, not the property value, those homeowners living in high-risk areas will need to find more creative ways to lower their insurance costs.

Homeowners and residents who have been left stranded by their insurance providers need to start looking around for more suitable options. Experts suggest that property owners shop around for homeowners insurance, not only now, when their policy might not be renewed, but at least every several years to see which companies can offer them the best prices.

Another possibility for homeowners could be to make improvements to their homes, either by adding more fortifications or installing flood prevention barriers. Though it's not to say that these measures will counter the destructive nature of severe hurricanes, it's at least a more affordable, and near-term solution for homeowners who feel they have no other choice.

Homeowners can also bundle their policies together, as some providers might offer lower premiums to customers who decide to use one provider for all their insurance needs. Owners are likely to find more affordable premiums if they put their auto, home, and other valuable insurance together as one.

Then, homeowners could raise their deductible or the amount they pay out of pocket before the insurance kicks in. Homeowners who can afford to pay towards damage or loss can potentially lower their premiums, and they must look around for companies that can lower their premiums should they have the cash to pay more out of pocket.

As the dark clouds loom ahead, many homeowners will need to make the necessary preparations, more than usual to ensure they're being covered and that should the storm make landfall within the coming months.