According to a recent LexisNexis Home Trends Report, there was a disastrous 40% increase in home insurance losses in 2020. Damage caused by wind alone saw an increase of 60%, In fact, damage caused by wind and hail accounted for 87.9% of all claims related to catastrophes. Covid-19 also played a role by causing a surge in the cost of goods that are vital for home repairs, including semiconductor chips, copper, and lumber. Let us look take a closer look at what exactly happened.
Severe Weather Events
While 2020 brought with it an exceptionally large number of weather-related disasters, 2021 was not far behind. According to data released by NOAA (National Oceanic and Atmospheric Administration), no less than 18 weather events with an impact of a billion dollars or more each hit the US in that year. These included:
Five unusually bad thunderstorms
Four tropical storms or hurricanes
Two major floods
Two hail storms
Two tornado series
A massive wildfire
A really bad winter storm
A massive cold wave
When it comes to individual perils, the following facts are interesting:
Hail. Although the frequency of hail storms remained more or less the same, the severity and the cost of losses related to hail storms dropped somewhat in 2020. Claims for catastrophic hail-related events, however, comprised no less than 62% of the total during that year. There was also a 9.9% annual increase in the number of hail-related catastrophe claims.
Lightning and fire. The 2020 wildfire season turned out to be the worst on record. This caused an increase in both the severity and cost of losses compared to 2018 and 2019. Catastrophe-related losses also made up a bigger percentage of the total. With more than a third of all catastrophe-related home insurance claims in 2020, California notched up the biggest losses in terms of cost, frequency, and severity.
Wind. There were significant increases in the severity of both the number of (+42%) and the losses involved with (+63%) wind-related claims in 2020. That year had the dubious distinction of recording the highest number of wind-related losses in six years.
Water damage. Although 2020 saw an increase in the number of water-related damage claims, there was a drop in losses compared to the year before. This was most likely caused by people being at home more often during the pandemic. And more homeowners could perhaps have started using smart water leak detectors.
The total damage in respect of all billion-dollar storms in 2021 combined amounted to well over $100 billion. This makes that year the fourth-most costly as far as billion-dollar storms go in the past 31 years.
The Link Between Covid-19 And Increases In The Cost Of Home Repairs
Apart from having to deal with many extreme weather events, home insurance firms also had to cope with supply chains issues caused by the Covid-19 pandemic. Due to problems with shipping building materials and the log jams at the country’s ports, the prices of building materials that are crucial for repairing and/or rebuilding homes began to skyrocket. In this regard, we specifically refer to the cost of cement, lumber, copper, steel, and semiconductor chips.
Home insurance firms are of course businesses that have to show a profit at the end of the year. They could not simply absorb these cost increases, which is why the price of insuring your home has gone up significantly over the last two years.
The Bottom Line When It Comes To Home Insurance
Despite recent price increases, the potential benefits of home insurance still far outweigh the costs, particularly when taking into account the recent increases in catastrophic weather events. With the rising cost of home insurance, it has, however, become even more important than usual to ensure that you are getting the best available cover for your money.