By Max Dorfman, Research Editor, Triple-I
The cost of home insurance exceeded inflation from 2000 to 2020, according to a new study from the Insurance Research Council (IRC) – like Triple-I, a subsidiary of The Institutes. During this period, IRC found that coverage was most affordable in Utah and least affordable in Louisiana.
The IRC research paper, Home Insurance Affordability: Nationwide Trends and State Comparisons, reports that the average spending on home insurance in the United States was $1,311 in 2020, while the median household income was $68,010 for the same year. The data excludes flood and earthquake insurance, neither of which are included in a standard home insurance policy.
Median household income comes from the U.S. Census Bureau, and data on average homeowners insurance spending comes from the National Association of Insurance Commissions (NAIC). Since the most recent NAIC data is from 2020, the affordability index does not reflect the surge in inflation linked to the COVID-19 pandemic and the war in Ukraine.
In Utah – the most affordable state – households spent just 0.92% of their income on homeowners insurance. Oregon, Wisconsin, Washington and New Hampshire round out the states with the lowest spending-to-income ratios.
Disasters played a major role in states where home insurance was least affordable. Louisiana topped the list, with 3.84% of income in 2020. The other least affordable states were Florida, Oklahoma, Mississippi and Alabama.
Part of these higher costs is because insurers face hurdles related to fraud, excessive claims and abuse of the legal system after catastrophic events. These cost factors have led to less affordable coverage nationwide.
Additionally, some areas are experiencing crises of both affordability and availability, as some insurers respond by reducing coverage or withdrawing from specific markets. The research note states that examining trends in cost drivers can reveal opportunities to improve both affordability and availability for all consumers.
Want to learn more about the risk crisis and how insurers are working to address it? Check out Triple-I’s upcoming Town Hall, “Attacking the risk crisis“, which will be held on November 30 in Washington, D.C.