Most Expensive Home Insurance Areas

Source: Dillon

Mother Nature can greatly affect your home insurance

The average cost to insure a american home in 2004 was $729, according to the most recent National Association of Insurance Commissioners feagures. The cheapest state for home insurance is Idaho, where the average home insurance premium was $448. In Texas, the most expensive state, it was $1,362, or 2.5% of the average Texans' household income. And that's with adjustments brought on by 2003 legislation that tightened regulations and eliminated many exemptions in the insurance business. Since then, Texans' rates have lowered by about 13%.


The N A I C data measure premiums, which is the total yearly cost to insure a property. In that respect, Texas went up 2.6% from the previous year, the lowest of any state. An insurance rate is the percentage of a home's value which is paid to insure the property. If home values go up, then premiums can go up even if rates go down.


Lets say for example, from a risk perspective, Idaho and Minnesota experience similar weather patterns, but a Minnesota family pays 70% more than one in Idaho. A quick examination of home values and income explains why. Minnesota home values are 55% greater and their household income is 42% greater than Idaho's.


And even as premiums in 2004 grew at a slower rate than in 2003, there wasn't much relief for those living on the coasts, where insurance rates are sky-high. There, property is generally more valuable than in other parts of the country, thus more expensive to insure. What’s more, coastal properties are more vulnerable to hurricanes and potentially rising sea levels.


It's these environmental factors, which some attribute to global warming, that are making insurance companies increasingly jittery. As a result, some providers are joining State Farm and completely pulling out of potentially high risk areas. After Katrina, some Insurance firms like Allstate have slowly ceased writing homeowner policies in Louisiana and Florida as well as coastal areas of Texas and New York.


"Every disaster known to man can happen in Texas, even earthquakes," says Jim Hurley, a spokesman for the Texas Insurance Department, a state organization for insurance agents and consumers. "We'd love to be lower on the list, but our geography and weather patterns won't allow it."


As a result, state-run agencies and nonprofits are picking up the slack. Louisiana Citizen Property Insurance Corporation, a nonprofit last stop, has increased its post-Katrina policies by 200,000, as larger insurers have retreated inland. In Florida and Texas, state-funded insurers and windstorm insurance associations are increasing their budgets and often charging consumers lower rates than private companies in high risk areas.

"States often charge less because they aren't looking for as much of a profit margin and they're willing to take up more risk," says Bob Hunter, director of insurance for the Consumer Federation, a consumer advocacy group, which issued a January report that said the ratio of claims paid and insurance costs to premiums collected is the lowest in 50 years. "Even with disasters in Florida and Louisiana, insurance companies have had three straight years of record profits."


More consumer relief may be on the way. States are increasingly taking an active role in shaping insurance costs and mandating cuts. Texas legislation reduced rates across the state by $500 million, and consumers can expect lower prices if the state wins its suit against State Farm Insurance, who refused to comply with the rate cut.


For years coastal states have lobbied for federal legislation to help insure their citizenry, and the newly elected Democratic Congress may grant that wish. This week Rep. Bobby Jindal, D-La., and Gene Taylor, D-Miss., plan to introduce the Multiple Peril Insurance Act, designed to bolster the National Flood Insurance Program (NFIP), which covers homeowners and small businesses. The NFIP already runs $25 billion in the red, and it's unclear where the additional funding would come from.


Some believe one good way for states to reduce risk is through the enactment of building codes that require structures to be more resilient in the case of a natural disaster. California has strict codes pertaining to earthquakes, and Florida requires buildings and infrastructure to be highly wind resistant.


"Ultimately, we all have to do a better job on the national level of managing disasters," says Florida Insurance Commissioner Kevin McCarty. "Instead of the federal government only riding in and delivering money after the fact, they need to also require that people build structures that are safer. If building codes are tied to federal grants it will give states an incentive."