Rising Home Insurance Costs: The Impact of Natural Disasters Across America

Americans across the country are facing rising home insurance costs due to natural disasters.

This is a shift from the days of when coastal states largely dealt with rate increases since they were in the path of hurricanes.

But now hailstorms, wildfires and wind damage are leading to rate increases in inland states such as Iowa.

While hurricanes still drive high premiums, Counties like Oklahoma and Texas are among the coastlines in the U.S., in part because of the hail, wildfire and tornado risk.

Additionally, rates can jump over 50 percent from state that neighbor each other.

Now, what's most important to know is that home insurance rates have greatly outpaced inflation since the pandemic.

Joining me to talk more about this is Jeff Gitterman, managing director of Gitterman Asset Management.

Jeff, thank you so much for joining me today.

Thanks for having me.

So let's talk, take us through the rise of in-home insurance costs in inland states now.

How are natural disasters contributing to all this?

So most of the assessments coming out of the insurance industry is that they've seen over a $60 billion increase in storms over the last five or six years annualized.

So that's translating to higher and higher home insurance costs.

Now, there's a lot of factors that play into this.

There's inflation, there's building materials and supplies that are going up.

But really at the root of the rapid rise is Increased hailstorms.

I don't know if you saw over the weekend, but the largest piece of hail to ever hit planet Earth on record since we've been keeping records hit Texas.

It was about this big, bigger than a grapefruit.

So these hailstorms create massive amounts of damage very quickly.

They could take out a whole strip of auto dealerships in about 30 seconds.

Fires, as we've seen on the West Coast and now more in Colorado and East Coast as well.

Today in New York City, we have fire warnings for this afternoon. also having dramatic impacts on pricing.

So what states do you see specific reforms taking place?

So we're seeing reforms in places like California and Nevada, and it's an interesting juxtaposition because each state is taking a different path to dealing with the tremendous amount of virus that's playing out in those states.

In Nevada, they're allowing insurance companies to completely take out fire insurance.

Now, this is wild because a lot of homeowners aren't even aware that they're buying policies that don't have fire coverage in it, and they don't find out potentially until they're hit with a fire and go to make a claim and it's not available.

What NABAT is allowing them to do is they can buy a separate policy for fire, but the insurance companies are getting to price in that fire risk at the highest premiums that they expect in those areas. correlate that to California.

In California they're still covering fire risk and there are mandates but there's deductions that you can take on your policy if you've done fire prep work.

So if you've cleared the area around your property, if you've added a metal roof to your property, if you've added vents that don't allow embers to come back in, if you've added heat-resistant windows.

There are these 25 points that you can actually exercise on your home that can bring down your premium and in that state then you're still covered.

We haven't seen a fire yet, massive fire like we've seen in 23 hit since those insurance reforms have taken place.

But this season with El Nino expected, could be a dramatic test to those policies.

And the most expensive counties are still coastal ones because of the hurricane risk.

But take us through the overall costs that now Americans will be facing.

You know it goes across now.

So there was a big study in The New York Times that found out that in the middle of the state in places like Oklahoma and Alabama and Tennessee rates were actually rising faster than coastal.

So we've seen a little bit of that slow down.

But on the coast you have two issues.

You have hurricane risk which is the biggest risk that could take out a large amount of communities at once.

But you also have much higher building costs on the coast.

You have more expensive homes on the coast.

Typically that all contributes to prices.

But where we're seeing the most dramatic increases because insurance companies are capped at what they can actually penalize homeowners for in specific states, especially California.

So we're seeing a lot of companies leave California.

Most of the large insurance aren't covering in California anymore.

And a lot of those costs being passed on in mid states where Tornadoes are rising.

Also, the path of tornadoes has been moving more east over the last couple of years.

Hail storms, huge expense, also rising.

So we're seeing the middle of the country take a big hit on rising insurance prices.

But still, Florida, California, Texas are leading.

So it's hard to get insurance in some areas.

And we know that prices for homes are super high at this moment.

The mortgage rate is above 6 percent.

Do you see natural disasters posing a significant risk to the housing market.

We do.

And we're actually going to cover on a segment that I'll do on my show right after this with ice on their new mortgage and climate capital. verification and risk assessment of the marketplace?

But yes, the answer is we're seeing specific risks being priced in.

So while a lot of people are still arguing about climate change, the insurance companies have moved past that and they're pricing in the risk.

And look, we're seeing inflation hit not only home prices, like you said, mortgage rates are high, but at homeowners insurance increase, we're seeing a 91% increase since 21 on many states homeowners insurance policies.

In Florida, some people are paying as much for homeowner's insurance as they're paying for rent right now.

So again, dramatic increase.

People are either having to go without it in states that will allow that.

But in most states, if you have a mortgage, you have to contractually also have homeowner's insurance.

It'll be interesting in Florida what the banks say, because all of a sudden now the banks can't say that you have to have fire coverage.

They just say you have to have homeowner's insurance.

If there's a fire, those people are going to walk away from those homes.

The banks are stuck with it.

We'll see what the bank's response is if there is fire risk elevated in Nevada this year.

So let's talk about investment opportunities.

What investment opportunities do you think arise here?

I mean, look, if you're looking for a second home, for instance, you really want to look in places where climate change hasn't had a huge impact, where homeowners insurance prices are still low.

Those are places like Maine, Buffalo.

There are still certain areas in the country. in the North and the Midwest, but you've got to watch out for fire risk there.

So you have to be thoughtful about it.

The other side is maybe you don't want to own a home.

If you want to live in Florida or California, maybe renting is the right option because it keeps your cost much lower.

Certainly in New York City right now, we're seeing a lot of people moving towards rent because between all the costs that they're facing, property tax increases, maintenance cost increases, renting is becoming cheaper in a lot of those options.

Maybe there's better places to put your investment dollars these days.

And how do you view the state and the property of casualty insurance sector at the moment?

I mean, it's great for them.

So this counter argument is these companies are making a lot of profits because last year, very minor hurricane season in the Atlantic.

Also, last year, we were going through a La Nina.

There's been a lot less fire risk over the 24th season.

So those companies are very profitable over the last 12 to 18 months.

But again, very low hurricane season, very low fire season.

We're moving into an El Nino.

I'm sorry, El Nino.

And the difference is much warmer temperatures in the Pacific.

That brings a lot more wind in.

It brings a lot more storms in.

It brings a lot more fire risk.

Plus, we have the lowest snowpack in Utah and Colorado that we've seen historically in both of those states.

Almost no snow during the season.

That's going to translate into tremendous fire risk because that snow melt during the summer months is usually what keeps the forest and the trees around the rivers and everything moist, that's all gone.

So we're going to face some serious questions.

But right now, those companies are profitable.

Let's talk about sustainability.

What sustainability approaches could help homeowners here?

It's really pointing to what California is doing.

They're being very thoughtful about it right now, even though they're doing that post a lot of insurance companies leaving the state already.

So it's a little late for some of that reform.

But the biggest thing you can do is actually invest in protecting your home yourself and get the insurance companies to offer significant credits for doing that.

There are pictures that we have on our website where we show, like in Miami after a hurricane, one house left standing in an entire region because that house had been hurricane-proof.

We see in California one house left standing after the Malibu fires because that house had done extensive rebuild.

Now, not unbelievably costly.

Again, there's a lot of companies out there right now.

We had one on the show recently that will come in and help you rebuild your home post a disaster with all of the qualifications that you need to really hurricane and fireproof your home.

And that's the time to do it because you're already getting money coming in to rebuild your home.

So instead of $10,000 for your roof, Maybe you have to put in another $3,000 to get that roof hurricane proof and fireproof, but that's the time to do that rebuilding.

But it's got to come with insurance reforms like in California to give credits for that.

Last question.

What is your broader market outlook right now?

You know, right now we're very much on hard assets.

And I think that old HALO acronym with Josh has been pushing around on his podcast.

It's very important right now.

Owning assets.

We're dealing with higher inflation.

We're dealing with high oil prices that are going to push inflation up. probably a lot longer than people want that to happen.

So owning hard assets, infrastructure, water, sustainable infrastructure, adaptation, resilience investing, which companies that help you fireproof your home, those are companies that we love and are attractive right now.

Jeff, thank you so much for your time.

Appreciate everything so much that you've done for us and the advice that you've given us.

Thank you so much, Ed.