How the Home Insurance Market Became So Distorted - The New York Times

How the Home Insurance Market Became So Distorted - The New York Times

Climate Forward

Climate change and widely varied state regulations could mean you’re paying too much or far too little to insure your home.

Have you noticed your home insurance getting more expensive? If so, you’re not alone: The price of insuring a home has jumped 33 percent since 2019, far more than inflation, new data shows.

But that data, which makes it possible to compare insurance premiums around the country, also shows something even more surprising: As climate change makes extreme weather more likely, the cost of home insurance doesn’t line up all that closely with risk. In an article published today, we found that homeowners with similar levels of exposure to storms, wildfires and other calamities often pay very different rates, depending on where they live.

(You can see what home insurance costs where you live in this interactive.)

Deciphering the cost of home insurance from one place to another is almost impossible. But two professors — Benjamin Keys of the Wharton School of the University of Pennsylvania and Philip Mulder at the University of Wisconsin — found a workaround. They obtained data showing how much millions of American households pay to mortgage service companies, which typically includes insurance. Then they deducted payments for mortgages, property taxes and other fees, leaving them with an estimate of home insurance premiums.

The result is first-of-its-kind data, piercing the veil that insurers and regulators have placed over the cost of home insurance in different parts of the country.

The patterns revealed by that data, which my colleague Mira Rojanasakul and I examine in detail in our article, are striking. I traveled to Enid, Okla., where insurance costs more, as a share of home value, than in New Orleans, much of which is below sea level. Homes in Enid also cost more to insure, as a share of home value, than those in extremely fire-prone areas of California or in the Outer Banks in North Carolina, where houses have begun slipping into the sea.

There can be a stark discrepancy in rates even between states that are next to each other. In McCurtain County, Okla., for example, the typical homeowner paid an average of $2,837 for insurance last year. But in Little River County, Ark., in the same area with the same weather just across the state line, the average homeowner paid $1,673.

“Families with the same level of risk exposure pay wildly different amounts to protect themselves from harm,” Dr. Keys told us. “Different prices for the same risk feels unfair.”

It’s worth noting the importance of home insurance. Without it, a bank won’t issue a mortgage; without a mortgage, most people can’t buy a home. And as climate change worsens, more homes are being damaged or destroyed by disasters. Without adequate home insurance, most people have no way to pay for rebuilding. So the cost of home insurance is a climate story — and an economic story, and a social justice story.

As Mira and I found out, the cost of home insurance is also a story about politics.

Much of the difference in insurance costs around the country reflects decisions made by state officials. They have the power to approve or block increases in insurance rates. But not all states use that power equally. Some, like California, make it harder for insurers to raise costs; others, like Oklahoma, prefer not to get in the way of the free market.

Other state rules matter, too, such as how easy it is to sue your insurance company, and minimum requirements for what’s covered by home insurance. Also important is whether states set up high-risk pools for people who can’t get insurance on the private market.

Those can seem like nerdy questions, deep in the weeds of policymaking. But it means what you pay for home insurance isn’t an accident. It reflects decisions officials have made in your name.

And those decisions are increasingly crucial in the era of climate change.

Another surprising finding from our reporting: When the cost of home insurance is distorted, the ones who are hurt aren’t necessarily just the people who pay more for coverage. Some say that people who pay less can also suffer.

Ishita Sen, a professor at Harvard Business School who has studied the role of state regulations in home insurance costs, told us that when the cost of insurance is too low, it encourages people to build, buy and live in homes in dangerous areas. In the short term, that puts people in physical danger; in the long term, it can expose them to financial danger, as insurance costs eventually escalate or home prices fall, or both.

When it comes to adapting to climate change, the private insurance market has often been viewed as the adult in the room, the voice of authority that’s willing to say to Americans: Sure, you can live along that beach, or in those fire-prone foothills. But it’s going to cost you.

This new data shows that the reality is more complicated. The mismatch between risk and insurance premiums means the cost of home insurance is an imperfect warning signal to prospective home buyers. Or, as Dr. Sen told us, the insurance market is “incentivizing all sorts of crazy behavior.”

4 things to know

June was the hottest month on record, according to data issued by the Copernicus Climate Change Service of the European Union. That’s the 13th month in a row of record-breaking temperatures. “This is more than a statistical oddity, and it highlights a large and continuing shift in our climate,” said Carlo Buontempo, the organization’s director.

Millions are still without power after Beryl. A day after the storm struck Houston, flooding roads and highways and killing at least four people, officials in Texas were struggling to restore power for millions of residents as more heat moved into area. This could be an increasingly common problem: In some areas of the United States, the risk of power outage after hurricanes could increase 50 percent in the coming years because of climate change, according to a new analysis.

Wildlife protections took a back seat to SpaceX’s ambitions. An investigation by The New York Times shows that SpaceX used preserved lands as a buffer for its operations in South Texas and misled officials about its plans for the area. As a result, the company led by Elon Musk has dramatically changed the fragile landscape surrounding its base and has threatened a wildlife habitat that the U.S. government is charged with protecting.

Google is no longer claiming to be carbon-neutral, Bloomberg reported. The tech giant’s latest environmental report shows that it stopped buying cheap carbon offsets to compensate for the greenhouse gas emissions its operations add to the atmosphere. The company now aims to reach net zero by 2030. In recent years, Google has doubled its total energy consumption because of its push to compete on artificial intelligence. Its planet-warming emissions last year were 48 percent higher than in 2019.

More climate news:

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Offshore wind is projected to fall short of the Biden administration’s 2030 goals,
Reuters reports, though it could catch up shortly thereafter.
-
New rapid attribution studies found that global warming made Beryl’s wind and rain between 10 and 30 percent more intense,
Inside Climate News reports.
-
After another year of floods and extreme heat, the Chinese government may be slowly changing the way it reacts to climate change,
according to The Washington Post.
-
In our era of extreme weather, push alerts warning us to take precautions will become increasingly common,
Zoë Schlanger writes in The Atlantic.

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Christopher Flavelle is a Times reporter who writes about how the United States is trying to adapt to the effects of climate change. More about Christopher Flavelle

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