Homeowning is becoming more expensive, and the culprit is not only elevated mortgage rates. In fact, many homeowners enjoy fixed rates under 4%. However, one issue all homeowners are currently struggling with is rising insurance premiums.
Insurance rates are being pushed higher by the rising cost of reinsurance policies. Reinsurance is “insurance for insurers.” For a specified premium, insurance companies can transfer their risk to other insurance companies. Since 2023, the cost of these premiums has increased, as shown in the chart below. Reinsurers have also reduced their coverage in disaster-prone areas. Subsequently, insurers have increased their own rates to compensate.
Reinsurance companies started making these changes in 2022, ostensibly in response to more frequent natural disasters. However, the reinsurance industry is expecting an injection of capital in 2024. Experts believe this could lower costs.
However, one thing is for certain with the housing market. With maintenance fees, mortgages, and property taxes all elevated, increased insurance rates are certainly and currently contributing to a “perfect storm.”
Source: Jean Eaglesham, WSJ; Nicole Friedman, WSJ
Reade Ben is a policy analyst at the Manhattan Institute.
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