Everyone is paying the price for stronger hurricanes

CHARLOTTE — When the aftermath of a storm leaves behind, fallen trees, ripped shingles or broken windows, your insurance company is typically your first call. After all, isn’t that what homeowners insurance is supposed to be for?

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You and your fellow homeowners pay your monthly premiums. Your company pools the funds and in the event of a disaster, there’s enough to cover most of the damage.

The problem is, these insurance companies say they’re getting more calls more often so to make ends meet, clients either get dropped or have to pay a lot more.

More risk, higher prices for supplies, bigger premiums

David Marlett, the director of the Brantley Risk and Insurance Center at Appalachian State University, studies these trends that are driving insurance industry decisions, such as when they will offer coverage and how much it should cost. He said the issue of rising rates is a near nationwide problem.

“The last several years has been this combination of inflation and population migration to areas that are higher risk and then climate change just magnifies those issues,” he said.

Not only is it more expensive to build and repair homes these days, but they’re taking more damage, more often from hurricanes, tornadoes, hail and other severe storms.

“These mid-size storms are causing much more damage and flooding than they have in the past, then you have the catastrophic storms like the hurricanes which are the most difficult to insure,” he said.

Citing these costly disasters, the North Carolina Rate Bureau, a nonprofit that advocates on behalf of insurers across the state, requested a 42.2% average increase in premiums across North Carolina and a 99.4% increase in some of the most hurricane-vulnerable coastal areas.

Ultimately, the state insurance commissioner negotiated that down to an average of 15% over the next two years. The average rate will increase by 7.5% in June of 2025 and 7.5% in June of 2026, though that will likely vary by county and zip code.

Those coastal areas, were approved for a 32% rate increase over the next two years and Mecklenburg County was approved for 18.5%, about 9.2% each year.

Keeping homes affordable

Marlett explains the Rate Bureau and regulators negotiate these premium hikes every few years, balancing the cost of doing business, with the imperative to keep homes safe and affordable across North Carolina.

“It’s unrealistic for a consumer an additional 42%,” he said. “There has to be some sort of reasonable approach between the regulators and the industry to have an increase to get the rates to where they need to be for the companies operate responsibly and be financially viable if there’s a loss but also you can’t devastate the housing market like we’re seeing in Florida and California.”

Insurance carriers say they can’t afford to cover hurricane and wildfire damage year after year, so they’ve requested massive premium hikes, dropped clients and pulled out of some of the riskiest areas entirely.

Marlett said to avoid that fate in North Carolina, we need to build and rebuild resiliently, manage our insurance rates appropriately. and pray for a long enough break between devastating storms that companies can recover from paying out in the wake of a disaster.

“We haven’t had as many hurricanes as we’ve had in Florida and we haven’t had as many wildfires like they’ve had in California,” he said. “If we have a series of bad years with hurricanes and wildfires, then we’re looking at a completely different situation.”

Unfortunately, even then, Marlett expects we won’t see rates decrease anytime soon. Inflation is still taking a toll on the cost of building materials. We’ve yet to see if tariffs will contribute to that as well and more people are moving to riskier areas.

“People want to live along the water, it’s beautiful but unfortunately that’s a high-risk area,” he said.

Insurance of last resort

When people do live in those high-risk areas, and they can’t get typical homeowners insurance, most states offer what are called FAIR plans or insurance plans of last resort. In North Carolina that’s the NC Joint Underwriting Association and the NC Insurance Underwriting Association.

As CEO of the nonprofit insurance agency, Gina Hardy explains they operate with a roughly 15% higher base premium for homeowners insurance and run with operating costs and expenses as low as possible so that when a disaster does occur, there’s plenty of funding in the pool to pay out.

“We had Hurricane Florence hit the state of North Carolina,” she said. “Between our two associations, we paid out $1.7 billion and we had 100,000 claims.”

In order to keep that kind of money on hand though, Hardy said her insurance needs to remain a last resort. In states, including Florida, California and Louisiana, where private insurers are opting out of coverage, FAIR plans are taking on more and more clients and facing a cost crisis as they need to respond over and over again to massive disasters.

Florida has seen the policy count for its FAIR plan, Citizens, triple in the past four years, and California has seen its policy count increase by 137% since 2019.

Hardy said fortunately, North Carolina is not seeing that kind of strain on its FAIR plans. At its peak, Hardy said the FAIR plan had an 80% market share in the Outer Banks and barrier islands. Now its 64% Elsewhere on the coastal plain the peak market share was 51%, the current share is 48%.

“So you’re seeing a lot of growth at the coast, but our percent of market share has been holding relatively stable in the whole of North Carolina,” she said.

Building more resiliently

Hardy attributes that to, in part, to recent efforts to build homes that can better withstand the worst North Carolina weather has to offer. NCIUA/NCJUA has been working with the Insurance Institute for Business and Home Safety to incentivize the best possible fortifications for homes in high-risk areas.

Since 2019, NCIUA has offered thousands of grants, amounting to tens of millions from its operating surplus, to homeowners along the coast to fortify their roofs. According to Michael Newman with the IIBHS explains its one of the cost-effective ways to prevent storm damage.

“[For example] your standard asphalt shingle roof, one inch of rain in a damaged roof can result in nine bathtubs worth of water pouring into the home,” he said. “That causes a tremendous amount of damage to your contents, tremendous amount of damage to the structure itself, there’s a need for mold remediation thereafter.”

Along North Carolina’s coast, Hardy said the results have proven themselves. After major storms, claims on homes with fortified roofs fell by 34.5% and loss per storm fell by 22.7%.

In some cases, Hardy said the addition of a fortified roof was enough to make a home, previously denied coverage on the private market, insurable again.

“If we can increase our surplus and not have to be a burden on the private market, that’s really that’s very positive,” she said.

What’s not covered?

Despite what these high premiums may imply, some of the costliest losses a home can experience are not covered under most homeowners insurance policies. Flood losses need to be filed under flood insurance policies, and losses from landslides, like we saw during Hurricane Helene, are rarely covered at all.

“It impacted a lot of people and there’s just not a solution right now,” Marlett said.

Those who live in the 100-year flood plain are required to get flood insurance if they have a federally backed mortgage. Those who live outside that zone, or have paid off their mortgages, may purchase federal or private flood insurance on their own, though it typically requires at least 30 days to take effect.

Federal flood insurance has its insolvency issues, but ultimately, Marlett said it’s the best option for risky properties besides elevating out of the flood plain or moving out of harm’s way.

For a myriad of reasons, Marlett understands it’s difficult to incentivize migration from high-risk areas, especially when they remain fairly affordable, but with increasing risks from sea level rise and storms and wildfires fueled by climate change, he said its likely we’ll reach a point where something will have to give.

“Realistically, when you look at where people are living, yeah you know you never should have built there,” he said. “It’s going to be impossible to insure.”

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