U.S. home insurance rates wildly distorted: data

NEW YORK, July 9 (Xinhua) -- A warming planet delivers increasingly damaging weather and pushes up the cost of home insurance drastically, with U.S. companies charging some people, far more than other homeowners with similar levels of risk, an examination by The New York Times (NYT) has shown this week.

"Industry experts offer several reasons for the disparities, including the fact rural states have fewer homeowners to share risk, and states have varying rates of insurance fraud, which can drive up premiums," said the newspaper, noting that "higher premiums are being charged in states where regulators apply less scrutiny to requests for rate increases, compared with states where officials question the justifications offered by companies and try to keep rates low."

The average premium jumped 33 percent between 2020 and 2023, far more than the rate of inflation, the data showed. But in some places, homeowners are paying more than twice as much for insurance, as a share of home value, than people who live elsewhere and face similar exposure to severe weather, according to the report.

The NYT analysis is based on new data that make it possible for the first time to see what households pay for home insurance by county and ZIP code, all over the United States. Across the more than 9,000 ZIP codes, the typical American household last year paid about 500 U.S. dollars in home insurance premiums for every 100,000 dollars of home value, or 0.5 percent.

But in California, which suffered through more than 7,000 wildfires last year, the typical homeowner in many ZIP codes paid premiums as low as .05 percent of home value. By contrast, in parts of Alabama, Oklahoma, Louisiana and Texas, the average homeowner faced home insurance premiums greater than 2 percent of the value of local homes.

In communities where insurance rates exceed the actual risk, home ownership can be unaffordable. And in places where insurance prices are too low, it encourages people to move into homes in areas likely to be hit by wildfires or other disasters that could deliver financial ruin, Ishita Sen, a professor of finance at Harvard Business School who studies why insurance rates diverge from risk, was quoted as saying. As a result, America's home insurance market is increasingly distorted, she said, adding that the market is "incentivizing all sorts of crazy behavior."

U.S. homeowners often pay their insurance premiums together with their mortgage and property tax, through an escrow account. They make a single payment every month to a mortgage service company, which then pays the mortgage lender, the local government and the insurance company. The system is designed to ensure homeowners never miss a payment.