One of key macro trends affecting your home insurance rates is the increased risk of climate change & its resulting impact on extreme weather events. Here for example is a chart from Allianz Global from on some of the costliest storms for the Insurance industry.
Of course, Post Sandy home insurance rates sky rocketed to sometimes more than $20,000 in rare cases. These rate increases are not just a post sandy phenomenon. Munich Re one of the largest re-insurance companies in the world put our research asserting that rising sea levels had increased the risk of catastrophic events.
To understand the linkages between climate change & your home insurance, one needs to understand how insurance works at a basic level. Here is a good primer from Smithsonian Magazine:
“Essentially, Insurance is a tool for spreading risk—say, the chance your house will be washed away by a hurricane—among a larger group of people, so that the cost of rebuilding the destroyed house is shared by everyone who pays insurance. To accomplish this, insurance companies sell flood policies to thousands of homeowners and collect enough in payments from all of them so that they have enough to pay for the inevitable disaster, plus keep some extra revenue as profit afterward. To protect themselves, these insurance companies even buy their own policies from reinsurance companies, who make the same sorts of calculations, just on another level upward.”
In practice, you buy your insurance from say Allstate who then pools together all the insurance payments from their customers & then hedges the risk with a re-insurer like Munich Re. So, when there is a larger catastrophic event from a storm, the re-insurer covers most of the losses.
So, now as the frequency of catastrophic events keep increasing and the costs from these events keep ballooning, the re-insurers demand more payments from your local insurance company who in turn pass those costs on to you.
So, Munich Re talks about rising sea levels and increased risks of more catastrophic, you can be fairly certain that your home insurance costs are going to increase.