The National Oceanographic and Atmospheric Administration (NOAA) recently warned that 2024 could be an active hurricane season. If that prediction is accurate, homeowners in several Mid-Atlantic states, the Gulf Coast, and even New York could face multiple natural disasters and significant home insurance premium hikes. Benzinga examines some of the most at-risk states.
Current NOAA projections forecast 8 and 13 major hurricanes, with roughly half (between four and seven) being Category 3 or higher. NOAA classifies Category 3 or above (on a scale of five) as a “major” hurricane. A recent study from Insurify predicts that five to eight hurricanes making landfall in the U.S. could severely disrupt insurance markets in the following states:
· New York
· Virginia
· North Carolina
· South Carolina
· Georgia
· Florida
· Alabama
· Mississippi
· Louisiana
Many states are at perennial risk of hurricanes, especially Florida and the other Gulf Coast States. They have long lived with this risk, but several factors have made homeowners’ insurance a thorny issue for affected state residents. First, modern hurricanes’ increased frequency and strength make them capable of causing immeasurable devastation without making landfall over a major city.
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Second, the rapid appreciation of property values has created a situation where even “glancing” blows from Category 3 hurricanes that technically “miss” major cities can cause billions of dollars in damage. That is especially true in Florida and the Mid-Atlantic, and they pay the price for that risk in insurance premiums.
The Insurify study found that the average homeowners’ insurance premium for the Gulf and Mid-Atlantic states is $2,994, 26% higher than the national average of $2,377. This is a significant increase, but a state-by-state breakdown reveals even more disturbing numbers. The average premium in Florida is a national high of $11,000, while Louisiana’s average is nearly $6,400 annually.
Insurifiy’s study predicts that Florida will see a 7% increase in 2024, bringing its average premium to $11,759. That’s almost $1,000/month on top of a mortgage and property tax payment, which is why Florida’s housing market is beginning to show some signs of strain. The insurance crisis in the state is so pronounced that Florida’s state-owned insurance company, Citizens Insurance, is the most significant home insurer in Florida.
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Louisiana’s rates could climb to $7,800 annually and Mississippi premiums may also rise from $4,312 to $4,482. Although the average Gulf Coast premium is 26% higher than the national average, many Gulf Coast residents already paid double and triple that amount. That’s why there was such a collective groan from homeowners all over the Gulf when NOAA and Insurify made their recent projections.
It may seem odd to find New York on this list because it’s so far north of the Mid-Atlantic and Gulf Coast. However, warming seas allow hurricanes to maintain strength much further north than in the past. A hurricane slamming into Long Island is not without precedent; the combined value of real estate could be trillions of dollars.
The financial district and valuable real estate in Brooklyn and Queens would also be at risk if a hurricane hit New York. Additionally, hurricanes that hit Mid-Atlantic states still pack enough wind and water to cause hundreds of millions of dollars in damage when they move north and hit New York. That’s why it’s a safe bet that New York homeowners will see premium increases if NOAA’s predictions are accurate.
The rising cost of homeowners insurance is a problem without an easy solution and it’s not going away. According to a recent article in Fortune magazine, home insurers paid over $100 billion in claims in 2023. That was the most expensive year in a decade, and most climate scientists predict hurricanes will only get more frequent and more potent as the globe continues to warm.
Home insurance needed to be set up to absorb the cost of an estimated 8 to 13 major hurricanes hitting states where they write policies in just one year. That’s especially true for companies writing policies in California, where mudslides and fires pose an equally high risk. It also explains why many home insurers exited the business entirely in California and Florida.
However, if that starts to happen nationwide, the implications for the real estate industry are frightening. The median home price in California just hit $900,000, but if insurers simply begin refusing to insure homes at that value, banks will stop writing loans on them, too. Make no mistake about it: The insurance premium issue has the potential to grind the real estate industry to a screeching halt.
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