If you're a homeowner, you probably know firsthand that home insurance rates rarely stay still. In fact, recent studies show that average home insurance rates have risen in every state in the last decade.
Though increases vary across all 50 states, the main culprit is the increased frequency and severity of natural disasters. Every year in the United States, natural disasters account for tens of billions of dollars in damages. A significant portion of those damages falls on the shoulders of insurance companies. When insurance companies experience huge loss from natural disaster–related claims, they compensate for that loss with an increase in home insurance rates.
Nearly two thirds of home insurance losses come from wind, hail, and water damage, and regions like the Midwest experience these weather events severely, leading to higher home insurance rates. Bottom line: when insurance companies take a loss from natural disaster claims, it’s homeowners who bear the grunt in their home insurance rates.
Homeowners Insurance Rate Increases by State
The National Association of Insurance Commissioners (NAIC) releases an annual report on insurance trends and stats. This report includes average home insurance rates for every state. Rate data is based on HO-3 policies, the most common home insurance policy.
The NAIC recently released their 2016 report, the latest full-year data available. In the table below, we compare annual home insurance rate data from the NAIC's 2007 report with its most recent 2016 report. Rankings are based on states that experienced the largest dollar increase from 2007 to 2016. The table also includes the percentage increase in home insurance rates from 2007 to 2016.
|Rank||State||2007 Premium||2016 Premium||% Increase||$ Increase|
|Note: This data is used with permission of the NAIC.|
Bad news for homeowners in the Sooner State. Average home insurance premiums jumped by a whopping 78 percent from 2007 to 2016. That amounts to an extra $821 per year. Rising home insurance rates have been a problem in Oklahoma for some time.
What is the main culprit behind Oklahoma's skyrocketing rates? Simply put, its natural disasters. According to the Federal Emergency Management Agency (FEMA), Oklahoma has declared 186 natural disasters—the second most in the country behind California. Oklahoma is less than half the size of California.
When it comes to disasters, Oklahoma has it all. "Oklahoma is prone to severe weather with tornadoes and hail storms in particular causing significant damage to homes every year," says Oklahoma Insurance Commissioner, John D. Doak. Oklahoma is smack dab in the middle of Tornado Alley. The Associated Press says the state "gets an outsized share of natural disasters."
Natural disasters lead to enormous expenses for insurance companies. Those expenses are passed onto consumers. "The rates charged by insurers will reflect the expected catastrophe losses for a given geographic area," says Doak. "Insurers plan and model for the likelihood of more common events like break-ins and fires, but also plan for major events like EF5 tornadoes."
Kansas shares a southern border with Oklahoma. Unfortunately, that means that they also share bad weather. And like Oklahoma, home insurance rates in Kansas have grown quite a bit. From 2007 to 2016, average yearly insurance rates jumped by $644.
The main culprit behind this 71 percent growth is tornadoes. Clark Shultz, Kansas Assistant Insurance Commissioner, says, "the exposure to tornado damage is greatest in the central US." He's not wrong. Three of the 10 strongest tornadoes in history took place in Kansas. That includes the 2007 Greensburg tornadoes, with damages reaching an estimated $268 million.
"We have also seen catastrophes occurring with greater frequency and severity, which often results in higher premiums," says Shultz. In 2011 alone, Kansas residents filed close to 200,000 claims worth nearly $1.1 billion in damages.
Average home insurance rates in Colorado jumped by an annual $620 from 2007 to 2016. This 75 percent jump is primarily due to one factor: "Increases in premiums for homeowners insurance in the last 10 years have been the result of the increasing number of natural disasters in that time period," says Vincent Plymell. He is the Communications Manager at the Colorado Division of Insurance.
Plymell highlighted tornadoes, wildfires, and hail storms as the main culprits, specifically the 2008 Windsor tornado, the 2012 Waldo Canyon fire, and the 2013 Black Forest fire. The two fires alone accounted for over $850 million in estimated insured losses. Colorado has seen an increase in the frequency and severity of such incidents.
But it's not only disasters that spike the scope of an insurance claim. Plymell says that losses are higher "because of the increased size and complexity of many homes, as well as increased costs for building materials." On top of that, Colorado is one of many states experiencing a shortage in construction workers. After a natural disaster, a lack of qualified contractors drives the cost of many claims.
The Bluegrass State tops our list for highest percentage increase at an 88 percent rate increase from 2007 to 2016. While not the highest dollar value increase, the high percentage bump would indicate a higher frequency of home insurance claims due to severe weather events.
Kentucky is not a member state of Tornado Alley, but it is no stranger to tornado events, which are becoming more common among states in the southeastern United States. "Dixie Alley," as experts now refer to the southern prone state, are upward trending when it comes to frequency of tornado touchdowns. A study by Nature indicates 10-billion-dollar tornado events are no longer uncommon. The study also indicates the southern states have "the greatest potential for increased tornado disasters by the end of the century."
South Dakota takes the second spot as the highest percentage increase of home insurance rates, at 82 percent from 2007 to 2016. The state doesn't have a particularly high risk for natural disasters, although neighboring Tornado Alley state, Nebraska is among the states with the greatest increase. South Dakota doesn't have the same frequency for high-damage storm events.
While the frequency of storms in South Dakota isn't as prevalent as it is in other states, their intensity could be cause for the high rate of home insurance increases. Insurance companies might be reading, and taking note of, national headlines like this one: "Five-ton tractor 'missing' in South Dakota following tornado."