Insurance Shifts Natural Disaster Costs onto Homeowners and Governments

Homeowner’s insurance underwriters in the U.S. have significantly restricted the extent to which they provide coverage. This trend began as a result of huge losses suffered due to disasters such as hurricanes. It is also a result of vast homeowner policy claims for mold damage, particularly in southern states. As a results, state governments are forced to move in to make up the difference.

After hurricane Andrew, Florida legislators attempted to utilize innovative ways to maintain the availability of homeowner’s insurance policies. They set up two state-sponsored insurers of last resort that provided windstorm coverage to homeowners who otherwise could not obtain wind coverage in the private market. Later, the state set a limit on the rates that could be charged for homeowner’s windstorm insurance, and established the Citizens Property Insurance Corp (CPIC) to cover homes for wind, hurricane and hail damage that insurance firms wouldn’t cover at the capped rates.

Meanwhile, the U.S. government runs the National Flood Insurance Program (NFIP) through the Federal Emergency Management Agency (FEMA). NFIP provides flood insurance to millions of homes, many located in Texas and Florida.

In many cases, today’s homeowner policies have reduced the underwriters’ exposure for claims due to windstorm, mold, swimming pool liability, dog owner liability and losses due to fires in fire-prone areas. In addition, policies typically no longer provide guaranteed replacement of the home regardless of cost to the underwriter. This puts the burden on the homeowner to be aware of the costs of replacing the home and then making certain that the policy amount is adequate for replacement. It also increases premium costs for homeowners seeking to maintain full coverage.