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Why more homeowners are dropping their insurance

In 2019, Anjali Tierra decided that homeowners insurance was no longer worth the cost. Tierra, a retired high school teacher, initially took out a policy in late 2018 after buying a three-bedroom home in the Tehachapi Mountains of Southern California. At less than $100 a month, the insurance seemed affordable and provided peace of mind in a high fire hazard area. However, her renewal notice the following year revealed a steep increase to $350 per month, which was beyond her budget. Relying solely on her $3,500 monthly pension, Tierra dropped her policy, hoping to find a more affordable alternative. Despite her efforts, she has been unable to secure any insurance since 2019.

Tierra is part of a growing number of American homeowners opting to “go bare,” or live without homeowners insurance. A study by the Insurance Information Institute found that 12% of Americans no longer have home insurance, a significant increase from 5% in 2019. This trend is alarming as it coincides with a dramatic rise in insurance costs.

Mark Friedlander from the Insurance Information Institute expressed concern over this trend, emphasizing the impracticality of paying out-of-pocket for significant property losses. For most U.S. homeowners, dropping insurance isn’t an option, as mortgage lenders typically require proof of coverage. Without insurance, lenders may impose “force-placed insurance,” which is often more expensive and offers limited protection.

For the 40% of Americans who own their homes outright, homeowners insurance might seem optional. However, industry experts warn against this risky decision. Tim Zawacki of S&P Global Market Intelligence highlighted the increased frequency of severe weather events, making the lack of insurance a gamble.

Some homeowners, like Tierra, take proactive steps to mitigate disaster risks, such as clearing brush and installing ember-proof vents. Yet, the absence of insurance still leaves them vulnerable, especially during fire seasons. The stress of being uninsured is evident, as Tierra describes it as emotionally draining.

The insurance crisis is causing unprecedented stress for many households, particularly those with their net worth tied up in their homes. Amy Bach of United Policyholders, a consumer advocacy group, noted that without insurance, one severe weather event could devastate a homeowner’s financial stability.

Rising premiums are driven by years of significant losses, inflation, supply chain disruptions, and the escalating impacts of climate change. In 2022, insurers paid out more than they collected in premiums. This situation is exacerbated by an increasing number of billion-dollar disaster events, leading to higher rates for the same coverage.

Former FEMA administrator Craig Fugate pointed out that while some mortgage-free homeowners might manage without insurance if they have substantial cash reserves, many underestimate their risk and potential repair costs. The strain of rising premiums is particularly acute for low-income households and homeowners of color, who are more likely to be uninsured.

In New Orleans, James Mercadal experienced firsthand the challenges of being uninsured after Hurricane Ida caused extensive damage to his home. Living on a fixed income, he couldn’t afford insurance or repairs, highlighting the precarious position of many uninsured homeowners.

This crisis is not limited to coastal areas. Landlocked states are also seeing increased losses from severe weather. Despite the growing risk, many homeowners underestimate the likelihood of being affected by extreme weather.

Michelle Gradnigo, a homeowner in Paradise, California, faced a 500% increase in her insurance premium after the devastating Camp Fire. Unable to afford the new rate, she had to take on debt to cover the higher payments. Despite efforts to find affordable coverage, her insurance costs remain three times higher than before, leaving her feeling unsafe and financially strained.

Homeowners can take steps to lower their premiums, such as bundling policies, raising deductibles, and shopping around for better rates. However, the rising cost of insurance and the increasing frequency of severe weather events continue to pose significant challenges for many.

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