Money

The Effect of Natural Disasters on Insurance Premiums

Data & Guides Money The Effect of Natural Disasters on Insurance Premiums

Natural disasters like earthquakes, wildfires, and floods can have a detrimental effect on people’s lives and homes. In 2023, there were 28 separate weather and climate disasters in the U.S. which each caused at least $1 billion in damages each. The total cost of these disasters was $92.9 billion, not including the East Coast storm and flooding event from December 16th-18th. [1] NOAA, ‘U.S. Struck with Historic Number of Billion Dollar Disasters in 2023’ https://www.noaa.gov/news/us-struck-with-historic-number-of-billion-dollar-disasters-in-2023

This study looks into the financial impact of living in areas that have a higher risk of natural disasters, and particularly the difference in insurance premiums in these areas.

Key statistics

• The average annual home insurance premium is $849 more expensive in areas at higher risk of natural disasters compared to the same state’s average.
• Residents of North Carolina see the biggest difference in home insurance costs in high-risk areas compared to the state average with a $7,252 difference.
• Hawaii and Wisconsin have the smallest differences with residents in natural disaster-prone areas only paying $23 more on average for home insurance in these states.
• 12 of the states analyzed, including New York and California, have cheaper insurance premiums in areas at higher risk of natural disasters.
• Texas is the state with the most areas at risk of natural disasters, with 64 counties marked as high-risk for disasters including coastal flooding, earthquakes, and hurricanes.

How natural disasters impact home insurance rates

Insurance rates are typically based on risk, and the higher the risk of the insurer needing to pay out on a claim, the more expensive your premium will usually be. This means that people living in areas where natural disasters are more likely to happen will sometimes pay more for their insurance premiums than people living in lower-risk areas.

Natural disasters and insurance premiums by state

Home insurance premiums vary by state for a number of reasons. These can include things like your home’s proximity to a fire department, whether you live near the beach, mountains, or city, as well as the likelihood of extreme weather or natural disasters. [2] Select Quote, ‘How Can a Home’s Location Affect Insurance Costs?’ https://www.selectquote.com/auto-and-home-insurance/articles/location-home-insurance-costs

The state with the biggest difference in home insurance premiums in high-risk areas is North Carolina. Here, an average annual premium in areas at high risk of natural disasters costs $7,252 more than the state's average. This is followed by Florida with a $4,667 difference in high-risk areas compared to average, and Nebraska with a $3,699 cost difference.

Of all the states analyzed, people pay an average of $849 more in areas with a high risk of natural disasters.

In 12 states, including New Mexico, Alaska, and New York, the price of insurance premiums in areas prone to natural disasters is less than the state average. This may be a result of high-risk natural disaster areas being low-risk in other ways compared to the state average. 

For example, Putnam County in New York is marked as very high risk for droughts, however, the rate of property crime is 15.3, which is much lower than the state’s average (24.5). [3] Bestplaces.net, ‘Putnam County, NY Crime’ https://www.bestplaces.net/crime/county/new_york/putnam

This is just one example that may explain why some areas have cheaper insurance premiums despite them being considered high-risk for natural disasters.

States with the biggest difference in insurance premiums

Let’s take a look at the states where areas prone to natural disasters have the biggest difference in home insurance premiums.

North Carolina

Residents of North Carolina see the biggest difference in insurance premiums with people in disaster-prone areas paying an average of $7,252 more than the state average. This state also has the highest average home insurance premium for high-risk areas ($10,486). North Carolina experiences more hurricane landfalls than most U.S. states, with 21 counties at high risk for hurricanes including Sampson and Brunswick.

Although standard home insurance policies don’t always cover wind and flood damage, homeowners in high-risk areas like North Carolina may pay a separate deductible for this. [4] NerdWallet, ‘The Best Homeowners Insurance in North Carolina for 2024’ https://www.nerdwallet.com/article/insurance/homeowners-insurance-nc

Florida

Florida comes second on the list with 22 counties at high risk of hurricanes including Palm Beach and Lafayette. Since 1851 when the Saffir/Simpson scale was introduced, Florida has been hit by 120 hurricanes, more than any other state and almost twice as many as the second most state, Texas (64). [5] Universal Property, ‘10 U.S. States Where Hurricanes Hit Most’ https://universalproperty.com/united-states-where-hurricanes-hit-most/

Residents in hurricane-risk areas in Florida can expect to pay an average of $4,667 more for home insurance than the state average of $2,880.

Nebraska

Third on the list is Nebraska where homeowners will pay $3,699 more for insurance in disaster-prone areas compared to the state average of $5,426. There are 37 counties in Nebraska classed as high risk for hail, including York and Butler.

Between 2012 and 2021, Nebraska experienced 548 hailstorms with a total property damage of $134.7 million caused by hailstorms. Each year, property damage from hail storms costs an average of $686.18 per 100 residents, putting Nebraska 8th on the list of property damage figures across the U.S. [6] Stacker, ‘States with the Most Hailstorms’ https://stacker.com/weather/states-most-hailstorms

Does home insurance cover natural disasters?

This depends on a number of factors like your home insurance provider, the level of coverage you opt for, and your location.

Many insurance providers will cover damage from disasters  such as:

• Wildfires and house fires
• Volcanic eruptions
• Wind and hail
• Hurricane wind damage
• Lightning
• Falling objects like trees

Earthquakes

Generally, home insurance companies don’t provide cover for earthquakes, but you can get earthquake insurance from private companies in most states. This is a good option to consider if you live in a state with a risk of earthquakes, like California or Alaska.

Flooding

For those who live in high flood-risk areas, you can purchase insurance policies from private companies and the National Flood Insurance Program (NFIP) separately from your home insurance. Flood damage is not typically covered under a standard home insurance policy.

Hurricanes

Some home insurance policies exclude coverage for hurricane and wind damage in coastal areas like Florida or coastal Texas. In these locations, you would need to purchase a separate insurance policy for windstorms or buy a policy endorsement for this. [7] Forbes, ‘Does Home Insurance Cover Natural Disasters?’ https://www.forbes.com/advisor/homeowners-insurance/ready-for-natural-disaster/

States with the most counties at high risk of natural disasters

When analyzing the states with the most areas at risk of natural disasters, Texas tops the list with 64 counties categorized by FEMA as high risk for natural disasters. These disasters include coastal flooding, Earthquakes, and Hurricanes. 

Nebraska comes second on the list with 38 counties at high risk of hail or wildfires, and South Dakota comes third with 30 counties marked high risk for hail, landslides, or wildfires.

Methodology

This study uses the Home Insurance Calculator by insurance.com [8] Insurance.com, ‘Home Insurance Calculators and Tools’ https://www.insurance.com/home-insurance-calculators-and-tools to assess insurance costs for counties in the United States recognized by FEMA as high-risk areas for natural disasters. [9] FEMA, ‘National Risk Index’ https://hazards.fema.gov/nri/map This tool helps insurers tailor coverage to mitigate risks such as floods, hurricanes, and wildfires, ensuring homeowners in these counties have appropriate protection.

Only the 40 states with chances of facing natural disasters according to FEMA were included in this analysis.

Premiums are based on a $400,000 home due to the median home price being $417,700 as of Q4 2023. All of the home insurance rates used in this study have a $1,000 deductible and $300,000 in personal liability.

Sources

• ^[1] NOAA, ‘U.S. Struck with Historic Number of Billion Dollar Disasters in 2023’ https://www.noaa.gov/news/us-struck-with-historic-number-of-billion-dollar-disasters-in-2023
• ^[2] Select Quote, ‘How Can a Home’s Location Affect Insurance Costs?’ https://www.selectquote.com/auto-and-home-insurance/articles/location-home-insurance-costs
• ^[3] Bestplaces.net, ‘Putnam County, NY Crime’ https://www.bestplaces.net/crime/county/new_york/putnam
• ^[4] NerdWallet, ‘The Best Homeowners Insurance in North Carolina for 2024’ https://www.nerdwallet.com/article/insurance/homeowners-insurance-nc
• ^[5] Universal Property, ‘10 U.S. States Where Hurricanes Hit Most’ https://universalproperty.com/united-states-where-hurricanes-hit-most/
• ^[6] Stacker, ‘States with the Most Hailstorms’ https://stacker.com/weather/states-most-hailstorms
• ^[7] Forbes, ‘Does Home Insurance Cover Natural Disasters?’ https://www.forbes.com/advisor/homeowners-insurance/ready-for-natural-disaster/
• ^[8] Insurance.com, ‘Home Insurance Calculators and Tools’ https://www.insurance.com/home-insurance-calculators-and-tools
• ^[9] FEMA, ‘National Risk Index’ https://hazards.fema.gov/nri/map