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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

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.

State Average annual premium of state Average annual premium in risky area of state Cost difference
State North Carolina Average annual premium of state $3,234 Average annual premium in risky area of state $10,486 Cost difference $7,252
State Florida Average annual premium of state $2,880 Average annual premium in risky area of state $7,547 Cost difference $4,667
State Nebraska Average annual premium of state $5,416 Average annual premium in risky area of state $9,115 Cost difference $3,699
State Kansas Average annual premium of state $5,492 Average annual premium in risky area of state $8,418 Cost difference $2,926
State Louisiana Average annual premium of state $3,338 Average annual premium in risky area of state $5,810 Cost difference $2,472
State Massachusetts Average annual premium of state $1,952 Average annual premium in risky area of state $3,976 Cost difference $2,024
State Montana Average annual premium of state $3,449 Average annual premium in risky area of state $5,123 Cost difference $1,674
State Arkansas Average annual premium of state $4,567 Average annual premium in risky area of state $6,049 Cost difference $1,482
State Colorado Average annual premium of state $3,918 Average annual premium in risky area of state $5,332 Cost difference $1,414
State Illinois Average annual premium of state $3,076 Average annual premium in risky area of state $4,153 Cost difference $1,077
State South Carolina Average annual premium of state $3,409 Average annual premium in risky area of state $4,416 Cost difference $1,007
State Mississippi Average annual premium of state $4,255 Average annual premium in risky area of state $5,254 Cost difference $999
State Tennessee Average annual premium of state $3,524 Average annual premium in risky area of state $4,366 Cost difference $842
State North Dakota Average annual premium of state $3,561 Average annual premium in risky area of state $4,264 Cost difference $703
State Kentucky Average annual premium of state $4,021 Average annual premium in risky area of state $4,723 Cost difference $702
State Texas Average annual premium of state $4,696 Average annual premium in risky area of state $5,228 Cost difference $532
State Utah Average annual premium of state $1,701 Average annual premium in risky area of state $2,210 Cost difference $509
State Virginia Average annual premium of state $2,588 Average annual premium in risky area of state $3,079 Cost difference $491
State Missouri Average annual premium of state $3,952 Average annual premium in risky area of state $4,412 Cost difference $460
State Iowa Average annual premium of state $2,937 Average annual premium in risky area of state $3,380 Cost difference $443
State Alabama Average annual premium of state $3,570 Average annual premium in risky area of state $3,984 Cost difference $414
State Oregon Average annual premium of state $1,865 Average annual premium in risky area of state $2,119 Cost difference $254
State District of Columbia Average annual premium of state $1,538 Average annual premium in risky area of state $1,696 Cost difference $158
State Georgia Average annual premium of state $3,005 Average annual premium in risky area of state $3,143 Cost difference $138
State Indiana Average annual premium of state $3,389 Average annual premium in risky area of state $3,522 Cost difference $133
State Idaho Average annual premium of state $2,356 Average annual premium in risky area of state $2,385 Cost difference $29
State Hawaii Average annual premium of state $749 Average annual premium in risky area of state $772 Cost difference $23
State Wisconsin Average annual premium of state $1,843 Average annual premium in risky area of state $1,866 Cost difference $23
State Arizona Average annual premium of state $2,413 Average annual premium in risky area of state $2,407 Cost difference -$6
State Washington Average annual premium of state $2,054 Average annual premium in risky area of state $1,995 Cost difference -$59
State Nevada Average annual premium of state $1,839 Average annual premium in risky area of state $1,773 Cost difference -$66
State Minnesota Average annual premium of state $2,900 Average annual premium in risky area of state $2,823 Cost difference -$77
State South Dakota Average annual premium of state $4,346 Average annual premium in risky area of state $4,258 Cost difference -$88
State Michigan Average annual premium of state $2,838 Average annual premium in risky area of state $2,741 Cost difference -$97
State California Average annual premium of state $1,741 Average annual premium in risky area of state $1,643 Cost difference -$98
State Maryland Average annual premium of state $2,117 Average annual premium in risky area of state $2,016 Cost difference -$101
State New York Average annual premium of state $2,273 Average annual premium in risky area of state $2,053 Cost difference -$220
State Wyoming Average annual premium of state $2,458 Average annual premium in risky area of state $2,040 Cost difference -$418
State Alaska Average annual premium of state $2,276 Average annual premium in risky area of state $1,823 Cost difference -$454
State New Mexico Average annual premium of state $3,346 Average annual premium in risky area of state $2,457 Cost difference -$889
State Average Average annual premium of state $2,868 Average annual premium in risky area of state $3,871 Cost difference $849

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:

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.

State Natural disasters Number of high-risk counties
Texas Coastal Flooding, Earthquake, Hail, Hurricane, Wildfire 64
Nebraska Hail, Wildfire 38
South Dakota Hail, Landslide, Wildfire 30
North Dakota Hail, Landslide, Wildfire 26
Kansas Hail, Landslide, Wildfire 25
Florida Hurricane, Landslide 23
Illinois Earthquake 23
Oregon Earthquake 23
North Carolina Hurricane, Landslide 22
Montana Hail, Wildfire 21
South Carolina Coastal Flooding, Earthquake, Hurricane 18
California Earthquake 17
Louisiana Hurricane 17
Mississippi Earthquake, Hurricane, Landslide 15
Kentucky Earthquake 13
Missouri Earthquake, Landslide 12
Arkansas Earthquake 11
Georgia Hurricane, Landslide 11
Tennessee Earthquake 11
Virginia Hurricane, Landslide 11
Colorado Earthquake, Hail, Landslide, Wildfire 10
Washington Earthquake, Hail, Wildfire 10
Nevada Earthquake, Wildfire 8
Alabama Hurricane 7
Michigan Coastal Flooding 5
Hawaii Earthquake, Hurricane, Landslide 3
Maryland Coastal Flooding, Hurricane 3
Alaska Earthquake, Wildfire 2
Iowa Hail 2
New York Coastal Flooding 2
Utah Earthquake 2
Arizona Earthquake 1
Idaho Wildfire 1
Indiana Coastal Flooding 1
Massachusetts Hurricane 1
Minnesota Landslide 1
New Mexico Earthquake 1
Washington DC Earthquake 1
Wisconsin Coastal Flooding 1
Wyoming Earthquake

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

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