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Homeownership costs are rising on all fronts, from property taxes to down payments, to closing costs and mortgage insurance. However, those are not the only expenses involved. Homeowners insurance is another cost, and premiums are becoming unaffordable for some.
This coverage is usually required for personal property such as single-family homes, condominiums, apartments, and mobile homes. It can help pay for repairs or replacement of the property and personal belongings in the event of damage.
From 2018 to 2020, premiums saw an overall increase of 5.4% — or from $1,251 to $1,319, on average, per year, according to data from the National Association of Insurance Commissioners.
For Black folks, the issue doesn’t stop there. Michael DeLong, research and advocacy associate with the Consumer Federation of America, says Black homeowners face the same historical bias, discrimination, and racism of redlining, which can increase their premiums or, in the worst case, lead to a complete denial of coverage.
“An insurance company could, can, and sometimes does say, ‘We’re going to not offer very good policies in this neighborhood’ — which happens to be mostly Black,” he says. “We can refuse to write policies for homes in those neighborhoods. We can require them to jump through certain hoops. We can discourage applicants in those neighborhoods.”
The list goes on, including refusing to underwrite buildings based on their age. Additionally, at least four prominent national insurance companies pulled out of some states earlier this year, pointing to climate change as a big reason.
This coverage is essential because, depending on the policy and amount of coverage, it can save homeowners from large bills in the case of damage from a natural disaster, for example.
Insurance Companies Opt-Out as Climate Change Worsens
Climate change is worsening in states particularly vulnerable to natural disasters like California, Florida, and Louisiana, which deal with wildfires, earthquakes, landslides, and hurricanes.
In July, Farmers Insurance discontinued offering new policies in Florida for home, auto, and other types of insurance. State Farm did the same in May, stating they would “cease accepting new applications.”
State Farm said they decided to stop due to “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”
It doesn’t stop there. Allstate stopped offering new policies for homes, condominiums, and commercial policies in California earlier this year.
In a statement to The San Francisco Chronicle, an Allstate spokesperson said the decision was due to the cost of insuring new customers in California is “far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes, and higher reinsurance premiums.”
Also, in July, AAA said it would not renew homeowners and auto insurance policies for a “very small percentage” of Floridians.
Last year, United Property and Casualty said it wouldn’t renew policies in Louisiana, leaving 36,000 in search of new insurance companies, as reported by the Associated Press. One report from ABC13 states in the last two years, “at least 20 insurance companies” left the state.
People can turn to other avenues, like state-backed insurance or Florida-serving Citizens Property Insurance Corporation. Citizens offers property insurance when Floridians can’t find private insurance, but it is considered a last resort because it can be expensive.
Consumer advocacy groups like the Consumer Federation of America say limited options leave communities and homeowners without resources in the face of unforeseen damage.
“Black and Latino neighborhoods tend to be disproportionately located in places that are more vulnerable to these kinds of disasters,” DeLong says.
Potential Solutions to the ‘Insurance Crisis’
Climate change is just one part of the story. Other discriminatory practices are at play with insurers using credit scores to determine eligibility and rates. This practice is common with auto insurance but also applies to homeowners insurance.
It is a disadvantage for Black folks who are typically in the fair range with scores of between 580 to 669, the Urban Institute found in 2022.
“In extreme cases, Black consumers have been denied coverage, resulting in not being able to secure a mortgage. For Black consumers, discrimination in the insurance market can potentially exacerbate the homeownership gap.”
D’JUAN HOPEWELL, FOUNDER OF BLK INSURANCE
To stop racism in insurance and reduce vulnerability for Black homeowners, the Consumer Federation of America recommended states investigate discrimination claims from policyholders, ban using socioeconomic factors, and punish insurance companies found guilty of using harmful practices.
They believe states should step in and offer state-backed homeowners insurance policies. These already exist in some states, including those facing an insurance crisis, but as climate change worsens, states should expand them.
Mitigation is another means of bringing down premium prices and reducing the amount of damage from natural disasters. However, DeLong says these methods and measures must be more affordable or supported by states and localities.
“You don’t sell one size fits all hair products, and so it follows that we also need insurance products that are designed for the particular needs of Black homeowners today,” Hopewell says.
