COVID-19 and Weather Events Drive Catastrophic Homeowner Insurance Losses


Billion-dollar damage weather events have pushed catastrophic home insurance costs up 40% over the past two years. With the COVID-19 pandemic putting pressure on supply chains and more extreme weather events on the horizon, insurance rates are expected to rise yet again.

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UPDATED: 2021-11-30T16:57:46.513Z
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What You Should Know

  • Catastrophic homeowners losses are on the rise due to extreme weather
  • COVID-19 has caused supply shocks that make fulfilling claims more expensive
  • With the rising costs of home insurance rates, homeowners can reduce their risk and costs

Catastrophic home insurance losses have risen 40%, and the losses for many individual home insurance perils are also increasing, according to the latest data released by risk solutions company LexisNexis.

With overall claim losses jumping 6% from 2019 to 2020, the clearest culprits are results of extreme weather: Wind loss cost increased by 63%, and 87.9% of catastrophic insurance claim losses came from the peril of "wind and hail."

Other major perils that suffered increased losses were "fire and lightning," "non-weather related water," and "theft." The frequency of claims also rose, with LexisNexis suggesting that extreme weather events contributed to the rise in losses and claim frequency.

COVID-19 has also added to the cost of claims, creating a supply chain shock that has escalated the cost of many goods needed for homeowner repairs, including lumber, copper, and semiconductor chips.

18 Billion-Dollar-Storms Struck the U.S. in 2021

2020 featured an unusually high number of extreme weather events, and 2021, thus far, has followed suit. According to the National Oceanic and Atmospheric Administration (NOAA), 18 billion-dollar weather events have impacted the United States this year. They include:

  • Four hurricanes/tropical storms
  • Five severe thunderstorms
  • Two series of tornadoes
  • Two hail storms
  • Two instances of widespread flooding
  • One winter storm and coldwave
  • One major wildfire
  • One drought

The damage for all billion-dollar storms in 2021 combined has reached over $100 billion. This cumulative damage total makes this year the fourth-most costly year for billion-dollar storms in the past 31 years.

With the increase in severe storms, 2021 is a damaging year for homeowners insurance companies. Because of that, homeowners are experiencing increasing rates.

COVID-19 Causing Rising Home Repair Costs

In addition to extreme weather, homeowners insurance companies have an additional headache to deal with: supply chain shocks around the globe due to the coronavirus pandemic.

Because of the log jams at ports and difficulty shipping goods, workers and contractors face steep prices to purchase materials necessary to rebuild and repair homes, passing this cost on to home insurance companies and homeowners.

Some commonly used materials needed to rebuild and repair houses that have high prices are:

  • Lumber
  • Steel
  • Copper
  • Cement
  • Semiconductor chips

This supply chain shock has increased the cost of fulfilling a claim, which home insurance companies may very well pass on to homeowners. So, what can you do to lower your homeowners insurance rates and the cost of your homeowners insurance claims, whether they are catastrophic insurance claims or not?

Tips for Lowering Your Homeowner Insurance Costs

There are some standard methods to save on homeowner insurance costs: shopping for discounts, comparing rates, and adding technology that can reduce your rates. Let's touch on some methods that are new or a little less known.

The Loss Adjustment Expenditure. The "Loss Adjustment Expenditure" is a the name for your homeowners insurance company's process of investigating claims. Usually, they do this with an inspector, which is costly. Fortunately, now, you can do it yourself. If your insurance company offers this option, all you need to do is submit a description of the damage and some pictures to your company. Keep in mind that you may not get a reduced rate, but it may speed up the process of receiving the money you're owed.

Pay small claims out of pocket. Whether you decide to file a claim depends on the damage, what you can absorb, and how much you think your company will raise your rates because you submitted the claim. Often — like with people who get into car accidents that cause almost no damage — you might be better off paying the cost to repair the damage yourself rather than absorbing a steeply hiked insurance rate.

Make your home more disaster-resistant. If you need to repair your home after an event, consider upgrading its readiness for a disaster. Retrofit it as much as possible against earthquakes, update the water and electrical system, put in hurricane shutters if you live in an area that sees many of these storms. Because your insurance company will see you as less likely to submit a claim in the future, they may give you a reduced rate.


References:

  1. https://risk.lexisnexis.com/insights-resources/white-paper/2021-home-trends-report?trmid=INSHME21.USHOMEAW21.USHTR2021.WS3P-532005
  2. https://www.ncdc.noaa.gov/billions/

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