BAM Key Details: 

  • Research from both Fannie Mae and Freddie Mac shows extreme weather has impacted the cost of homeowners’ insurance for the majority of U.S. homeowners. 
  • According to Fannie Mae’s National Housing Survey, nearly half of consumers worry about the impact of climate-related events on their homes, and two-thirds say climate-related events and property damage have impacted their insurance premiums.
  • Freddie Mac’s research shows more than a 40% increase in homeowner insurance premiums for the average homeowner from 2018 to 2023. 

In 2023, the average insured homeowner paid 40.8% more on homeowners’ insurance compared to five years ago. 

Also in 2023, the U.S. was slammed with a historic number of billion-dollar-plus weather- and climate- related “natural disasters,” according to the National Atmospheric and Oceanic Administration (NOAA)

Predictably, the cost of the resulting deluge of insurance claims has led to an increase in homeowners’ insurance premiums—not to mention consumer worries about more disasters to come. 

Reports by Fannie Mae and Freddie Mac highlight concerns shared by nearly half of all homeowners about the impact of weather-related events on their homes. 

Two-thirds of the homeowners surveyed by Fannie Mae’s ESR Group say extreme weather has impacted their homeowners’ insurance rates. 

And for some homeowners, rising premiums are taking a larger bite of their monthly incomes. For others, insurance companies in their state have stopped even providing coverage for specific weather-related risks, leaving them on the hook for any disaster-related property damage. 

The financial impact of rising homeowners’ insurance costs

Homeowners across the U.S. rely on homeowners’ insurance for financial protection against property damage, especially damage resulting from natural disasters like floods, wildfires, and strong winds. 

For example, say a hurricane hits your hometown and does a number on your home, with a one-two punch of powerful winds and flooding. Fortunately, you have insurance that covers both wind damage and flooding, which offsets the cost of repairs or helps with the expenses involved in finding a new place (if your home is damaged beyond repair). 

Unfortunately, as the cost of climate-related property damage goes up, insurance premiums typically follow suit, imposing an additional financial burden on homeowners. 

That burden is not evenly distributed, either. Homeowners with very low incomes and some living in high-risk areas are seeing a higher percentage of their income going to their insurance premiums. 

That additional burden no doubt factors into homeowner concerns about the financial impact of weather-related disasters. 

Nearly half of consumers are concerned about the impact of weather-related events

According to research conducted by Fannie Mae’s Economic & Strategic Research (ESR) Group, nearly half of all consumers are concerned about property damage from weather-related events and how that could impact their financial well-being. 

Two-thirds also reported that weather-related events have impacted their insurance premiums. 

The ESR Group recently leveraged its National Housing Survey to ask homeowners and renters which weather-related events concern them—and whether they anticipate an increase in their insurance premiums (or rent because of increased insurance premiums). 

Among those concerned about the impact of extreme weather-related events—nearly half of the consumers surveyed—respondents said they were most concerned (“extremely” or “somewhat”) about extreme heat (24%) and strong winds from tornadoes and hurricanes (23%). 

Consumers were less concerned about— 

  • Drought (15%)
  • Wildfires (13%)
  • Flooding (12%)

Geographic location also factored into the type of weather-related events of greatest concern to consumers: 

  • Strong winds are the number one concern in the Northeast, Midwest, and South
  • Extreme heat is the primary concern in the West—specifically in relation to drought (24%) and wildfires (22%)

A full quarter of the survey respondents indicated they had experienced damage to their current home resulting from an extreme weather event. 

Fannie-Mae-Regional-extreme-weather-concerns

Source: Fannie Mae

Weather-related events have impacted premiums for two-thirds of insured homeowners

As mentioned above, two-thirds of homeowners with property insurance said weather-related events and (resulting) damage have impacted their home insurance premiums. 

One in four reported a “large impact” on their insurance premiums. 

Two-thirds of homeowners also say they’ve taken precautionary measures to minimize the risk of property damage from future weather-related events: 

  • One-third have taken steps to prevent wind damage
  • One quarter (27%) have taken action to prevent or minimize water damage from sewer and drain backups
  • Nearly a quarter (24%) have taken steps to address the risk of flooding

We applaud proactive homeowners like these, especially those living in high-risk areas. And it makes sense to share information with your clients that could help them minimize or even prevent damage to their homes from weather-related disasters. 

Think of it as another way to add value as a lifetime home support partner

Rising insurance premiums have consumers worried

Nearly one in ten consumers are not confident they’ll be able to afford their insurance premium when their policy renewal date comes around. 

Minority homeowners—including Black (14%), Hispanic (13%), and Asian (15%) insured respondents—expressed more concern about affordability than white homeowners (8%). 

Fannie-Mae-Impact-of-weather-related-property-damage

Source: Fannie Mae

Climate concerns take a backseat to other factors

It’s worth noting here that while Americans are concerned about property damage from weather-related events and its resulting expenses (including higher insurance premiums), this concern still lags behind more immediate concerns like the following: 

  • Costs involved in routine home maintenance (70%)
  • Property tax increases (64%), 
  • Economic inflation’s impact on affordability (60%)
  • Concerns over job loss (49%)

Read the full article on Fannie Mae for more.

Freddie Mac highlights concerns about insurance premiums

In its U.S. Economic, Housing and Mortgage Market Outlook for March 2024, researchers for Freddie Mac estimated the average annual homeowner insurance premiums (without adjustment) from 2018 to 2023. 

Those estimates were based on research involving Freddie Mac borrowers for a single-family owner-occupied home with a conventional 30-year fixed-rate mortgage. 

In 2018, they put that figure at $1,081. By 2023, the average borrower was paying an annual insurance premium of $1,522—10.8% higher than the previous year (2022) and 40.8% higher than in 2018. 

Homeowners’ insurance rates, on average, have held steady, showing only a slight uptick over the five years in Freddie Mac’s analysis. 

In 2018, the average borrower in Freddie Mac’s study paid $4.70 per $1,000 of their home’s value; in 2023, the rate had increased by just $0.20 to $4.90 per $1,000. 

Freddie-Mac-Annual-homeowners-insurance-premium-and-effective-rate-2018-to-2023

Source: Freddie Mac

That said, the effective homeowners’ insurance rates varied widely across the U.S., with borrowers in Louisiana, Oklahoma, Kansas, Nebraska, and Mississippi paying an average rate of over $8 per $1,000 in property value while borrowers in California, Washington, Nevada, Oregon, Utah, and Washington, D.C. paid less than $2.5 per $1,000 in property value. 

The higher insurance rates reported for central U.S. states are consistent with the data collected by the National Association of Insurance Commissioners (NAIC). 

And while greater-than-average vulnerability to natural disasters is one of the many factors that could drive up homeowner insurance rates, local regulations can also play a significant role. Case in point, California insurance companies offering homeowners’ insurance are subject to regulations that limit the rates they can charge. 

That at least partly explains why California rates are relatively low compared to states with similar levels of climate-risk like Louisiana and Mississippi. 

Freddie-Mac-Effective-HO-insurance-rate-map

Source: Freddie Mac

As homeowners’ insurance premiums keep rising, one topic of concern is the financial burden this places on homeowners—specifically how much more of their income is going to their homeowners’ insurance premium. 

In 2018, according to Freddie Mac’s research, insurance premiums made up an average of 1.49% of a borrower’s monthly income. By 2023, that share had increased by 10% to 1.64%. 

Shares were even higher in certain states like Louisiana, Oklahoma, Kansas, Nebraska, and Mississippi, where homeowners’ insurance premiums took more than 2.5% of the average borrower’s monthly income. 

Freddie-Mac-HO-insurance-cost-burden-by-state-map

Source: Freddie Mac

It certainly doesn’t help that, during the same period, those borrowers were spending a larger share of their income on their mortgage principal and interest payments, further increasing their monthly housing costs. 

That said, it’s worth noting that while rising insurance costs have added to total monthly housing cost burdens, the net impact is far less than that of higher mortgage principal and interest payments. 

Freddie-Mac-Average-housing-cost-Percentage-of-monthly-income-chart

Source: Freddie Mac

While the impact of higher insurance costs has been felt across the U.S., some homeowners, particularly those with very low income, are feeling the cost of higher insurance premiums more than most. 

Between 2018 and 2023, borrowers with an income of no more than 50% of the area’s median income (classified as “very low-income”) were consistently the sector most burdened by rising insurance costs. 

In 2023, homeowners’ insurance premiums claimed 3.1% of the average very low-income borrower’s monthly income—a significantly higher share compared to low-income (2.1%), middle-income (1.5%) and high-income (1.1%) borrowers. 

Freddie-Mac-Average-HO-insurance-cost-burden-by-income-2018-to-2023

Source: Freddie Mac

Read the full report for more.