Much as the risk of tornadoes, hurricanes, wild fires and other destructive weather forces vary from state to state, so does property insurance for homeowners. With costs and coverage levels as inconsistent as the weather itself, consumers must navigate a complex market to pick the right policies.
Given the variability, it is worthwhile to do comparison shopping from time to time to make sure the premium you are paying and the coverages provided are appropriate,” says Don Griffin, vice president of Property Casualty Insurers Association of America, or PCI.
Indeed, average homeowner insurance premiums range anywhere from $400 to $1,400 a year, according to the PCI. For instance, homeowners in Idaho pay an average of $401 per year, whereas those in Florida pay $1,399.
A state-regulated industry, there is no national “norm,” and the top-ten most expensive states for homeowners insurance are literally all over the map.
Note that these rates do not include separate charges for states susceptible to hurricanes and earthquakes. Hurricane or "windstorm" coverage averages $2,769 per year, whereas separate earthquake insurance (offered only in California), ranges from $800 to $1600, depending on location.
Insurers Inherit the Wind
If you are in a hurricane-prone state, additional insurance is a must. What's more, insurers’ decision to drop storm-related coverage, most commonly hurricane-related, has created an entire secondary insurance pool.
Should insurers be allowed to charge homeowners special rates for hurricane coverage?
This market called “windstorm insurance” exists to supplement “normal” homeowner insurance, and is currently offered in Alabama, Florida, Louisiana, Mississippi, North Carolina, South Carolina and Texas. (See slideshow.)
“We call it the market of last resort because it’s for property losses that the insurance industry is not willing to absorb themselves,” says Griffin of PCI.
Considered “high-risk,” homeowners in these states often cannot secure hurricane, hail, tornado, or flood insurance for their property. Hence their only option is to buy windstorm, with its own separate premium and deductible.
“Allstate, State farm, and Travelers Insurance all exclude wind. So homeowners in a wind zone pay for two separate policies — one for standard risks like fire, theft, and explosions, and a separate policy for wind damage,” says Jeff Schulze, principal agent of Owens Insurance in South Carolina.
Earthquakes are Extra
Also separate from standard insurance, are earthquake policies. Due to their high cost, 90 percent of homes in California do not have earthquake insurance, according to the California Earthquake Authority, or CEA. A non-profit insurance company, the CEA insures only 821,000 homes in the entire state.
CEA Chief Executive Glenn Pomeroy explains: “We struggle to make our coverage as affordable as possible. Our rates are adjusted for high-severity, low-frequency risk. But it all depends on where the home is located. If we take an average $400,000 home with an average risk profile, that’s an $800 per year premium. But place that same home near a seismic area and you could double that to $1,600.”
Looking to cover more Californians, Pomeroy filed with the state for an overall 12 percent reduction in rates. While he waits for an outcome, the solution is less clear for other “high-risk” states, where no such rate regulation is being considered.