How Insurance Deserts Will Affect Home Prices

Q: My cousin in California is having trouble getting homeowners insurance I guess because of wildfires out there. Do you think that will affect the real estate market out there? Janet, Southern Shores, North Carolina

A: Insurers have experienced record losses recently due to catastrophic damage from natural disasters like wildfires and storms. Climate change has made risk assessment more difficult for insurance companies which results in much higher insurance premiums and limits insurance choices for homeowners. When insurers can’t accurately quantify a risk, they charge a higher premium to create a financial cushion. Insurance premiums have outpaced inflation in recent years due in large measure because reinsurers (the insurers who insure insurance companies) have raised their insurance premiums. In some areas, homeowners can’t get insurance or have only one expensive option, which ultimately will make homes harder to sell and make many of them less valuable. As climate change continues, it will create insurance deserts where people can’t get insurance coverage. The fact that Geico closed all of its California sales offices in 2022 is a harbinger for what is bound to come in the future. Even if a homeowner is able to get an insurance policy when they buy a home, they may not be able to get an insurance policy down the road; property insurance policies normally have to be re-approved and renewed annually–when you get a 30 Year mortgage you are making a 30 Year financial commitment–not being able to get an homeowner’s insurance policy later on could be disastrous especially because most mortgage lenders require their homeowners to have insurance. Thanks for your question, Janet.

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