Robert Shiver’s homeowner’s insurance bill jumped from $3,800 in 2022 to $8,000 in July. “I remember opening the bill and, frankly, laughing, like, ‘That’s not possible,'” he said.
Mr. Seaver, 40, who lives about 20 miles east of Tampa, Florida, did not pay the bill. Instead, he worked with his insurance agent to drop some of his coverage, lowering the estimate of how much the insurer would have to pay to rebuild his home from about $710,000 to about $560,000.
The coverage drop reduced his bill to just under $5,000, a huge relief, he said, since he could once again make his monthly mortgage and insurance payment.
In the insurance industry, Mr. Shiver may now be considered “underinsured,” meaning his policy may not be sufficient to cover a rebuilding after catastrophic losses. Underinsurance is not a new problem, but it has become much more widespread and severe over the past three years as rising inflation and climate change have created a highly volatile and unreliable insurance market and raised costs for homeowners — sometimes with unexpected ways.
Insurers’ losses from natural disasters topped $100 billion for the fourth year in a row in 2023, and they’re passing that cost on to property owners. High inflation has also forced insurers to raise interest rates to cover claims.
Some homeowners drop their own coverage, forgoing hurricane or windstorm protection. find ways to lower the replacement values of their properties, as Mr. Shiver did. or increasing their discounts. Others find that their policies will not fully cover the cost of rebuilding due to sharp increases in the cost of materials after the disaster has already struck.
Colorado Insurance Commissioner Michael Conway discovered the extent of the underinsurance problem after a wildfire near Boulder destroyed nearly a thousand homes in 2021. After receiving calls from homeowners worried their policies wouldn’t fully cover the cost of rebuilding , the state of Insurance researched and found that only 8 percent of policies in fire-affected areas pledged to cover rebuilding costs no matter how high. It also found that between one-third and two-thirds of all homes affected by the fire were underinsured for rebuilding costs within a typical range.
To try to fix the problem, Mr Conway and his team convened meetings late last year with insurance companies, builders and other groups to brainstorm ideas to make things easier for homeowners, but so far they haven’t plans arise.
“We are very concerned about what these homeowners are dealing with with the affordability issues and we fully sympathize with the pressure they are feeling to find a way to afford their insurance cover,” Mr Conway said.
Julie Coffey didn’t realize she was underinsured until she ran out of money while trying to rebuild her home near San Francisco after it burned to the ground in August 2020 in one of several large wildfires that swept through parts of California that summer.
It took months before Ms Coffey found out what she would get from her insurer. When she began rebuilding her home in 2021, inflation was accelerating and building supplies were scarce. Her new home lacks basic features she could not afford, such as a water softener and fencing.
“Within a month of living here, my sink is showing signs of rust,” Ms Coffey said. “It’s crazy all the things you have to do to try to get close to where you were without worry or thought.”
Mark Friedlander, a spokesman for the Insurance Information Institute, a trade group, said home insurance premiums rose a cumulative 32 percent from 2019 to 2023, while rebuilding and replacement costs rose 55 percent. Analysts for the group estimated that in 2023, home insurers experienced their largest underwriting loss — the difference between premiums collected and claims paid — since 2011. Behind the loss were massive storms that caused more than $50 billion in losses that had to for insurers to pay For.
A survey last year by the institute and researchers for Munich Re, a reinsurance company, found that 88 percent of U.S. homeowners had property insurance, up from 95 percent in 2019. Only 4 percent had flood insurance, even though 90 percent of the country’s natural disasters include floods.
Once insurers raise premiums, many homeowners find that their lenders are willing to explore ways to make their payments more affordable. Banks that collect mortgage payments must ensure borrowers’ coverage meets requirements set by government-backed mortgage agencies Fannie Mae and Freddie Mac, but are open to landlords to modify them within those requirements, he said. Pete Mills, chief economist at the Mortgage Bankers Association. , the trade group for the mortgage industry.
Amy Bach, the executive director of United Policyholders, a nonprofit advocacy group that helps insurance consumers navigate difficult claims processes, said she finds herself proposing many strategies these days to keep policies affordable.
“For most consumers, what they’re facing now is: What’s the least-worst option for me, given the pricing?” he said. It advises reducing coverage to the contents of a home or cutting coverage for outbuildings such as garages, sheds, swimming pools or retaining walls.
“We said, ‘Raise your deductible,’ but now, what does that mean?” said Ms. Bach. “My parents’ house on Long Island has a $33,000 deductible out of the air,” meaning they’d have to pay that much out of pocket — a huge share of the cost of a new roof — before getting any help from their insurer.
Not everyone thinks it’s a good idea to let borrowers shave off some of their coverage. Brian Marino, an insurance agent in Fort Lauderdale, Fla., said he worries that if homeowners had only enough coverage to satisfy their lenders, lenders could recover what they needed after a disaster, while borrowers wouldn’t. they could afford the complete rebuild.
“The bank is satisfied,” Mr. Marino said, “but it’s out on the street.”
Mr. Friedlander, a spokesman for the trade group, said bundling home and auto policies and making “deductible adjustments” are common ways to lower insurance costs, adding that the institute recommended working with an agent “to lower costs of your policy without reducing your coverage levels.”
Homeowners aren’t the only ones dropping their coverage under pressure. Peachtree Group, an Atlanta-based real estate investment firm that owns hotels, rental homes, office space and other properties across the country, expects discounts on some of its properties to increase this year in response to rising insurance costs, said Charles Talbert. representative of the company. That would leave it paying more rebuilding costs.
Sue Savio, an insurance agent in Honolulu, said underinsurance had recently become widespread on Oahu. “We have a lot of condominiums whose premiums would have doubled or tripled,” Ms. Savio said. But instead of paying those higher premiums, homeowners were exempted from coverage for hurricane damage, since such storms don’t often hit Hawaii.
“Our last hurricane was 32 years ago,” Ms Savio said.
Those who own their homes or other real estate have much more leeway in deciding whether or not to insure their possessions. Some wealthy homeowners are willing to take on the risk of being underinsured because they can afford to repair their properties themselves.
“I’ve talked to people who own their home and choose to forgo wind damage. They’re continuing to flood in,” said Brian Gray, chief executive of UBS, whose wealth management group serves some of Tampa’s wealthiest residents.
One of Mr. Gray’s clients agreed to a $1 million settlement.
