The earthquake and tsunami in northern Japan has prompted homeowners everywhere to double-check their coverage. But those who decide that more coverage will help them sleep better may find an unpleasant surprise: Premiums are expected to spike.
The costs of earthquake insurance and flood coverage were already climbing, even before the disaster in Japan (and that, analysts say, won't help pricing either). Earthquake insurance premiums jumped by as much as 58% in some regions, says Mike Chaney, commissioner of insurance for Mississippi. They now costs anywhere from $100 to $3,000 annually depending on where you live. Flood coverage costs an average of $570 a year, up 4% from 2009. And those costs are expecting to keep rising, says Drew Woodbury, an equity analyst covering insurance at Morningstar.
What's driving the uptick? Insurance premiums move up after more claims are filed, and over the past few years U.S. homeowners have filed thousands of claims related to the series of hurricanes in the South and Midwest, says Chaney. Another jump in claims is expected next year if more devastating hurricanes and other natural disasters occur. On top of that, a proposal in Congress could also boost annual premiums by as much as 20% as part of a plan to overhaul the federal government's flood insurance program, itself underwater by $18 billion.
These higher premiums come just as natural disasters are happening more frequently, says David Neal, director at Oklahoma State University's Center for the Study of Disasters and Extreme Events. There is now a 50% chance that at least one major hurricane will hit the East Coast this year, up from 31% historically, according to a study from Colorado State University. Earthquakes are also becoming more common: On average, 15 magnitude-7 earthquakes occur worldwide each year, says Dr. Harley Benz, a seismologist at the U.S. Geological Survey. But in 2010, that number spiked to 21, and already this year there have been seven, according to the USGS.
Not every homeowner needs the extra coverage. But while basic homeowners' insurance usually protects again fire and lighting, it often doesn't cover floods, earthquakes and other natural disasters. Consumers instead need to purchase additional policies. One thing to consider, say experts: Do you stand to lose more paying premiums every year or saving that money to possibly pay for repairs should a disaster occur? Over 10 years, flood insurance premiums could cost up to $27,340, for a high-risk home with $250,000 in coverage to rebuild the house and $100,000 to cover the contents, according to the Federal Emergency Management Agency, which runs the National Flood Insurance Program. The typical cost to repair a basement after a flood of six inches is about $25,000, not including the cost of replacing furniture, appliances or belongings, according to FEMA.
Of course, homeowners can also avoid these expenses by moving to less disaster-prone areas. Individuals can research the country's earthquake and flood zones for safer places to live. Also, before moving, check with a lender; most will tell borrowers they're moving into a high-risk flood zone and make sure they sign up for flood insurance.
The costs of earthquake insurance and flood coverage were already climbing, even before the disaster in Japan (and that, analysts say, won't help pricing either). Earthquake insurance premiums jumped by as much as 58% in some regions, says Mike Chaney, commissioner of insurance for Mississippi. They now costs anywhere from $100 to $3,000 annually depending on where you live. Flood coverage costs an average of $570 a year, up 4% from 2009. And those costs are expecting to keep rising, says Drew Woodbury, an equity analyst covering insurance at Morningstar.
What's driving the uptick? Insurance premiums move up after more claims are filed, and over the past few years U.S. homeowners have filed thousands of claims related to the series of hurricanes in the South and Midwest, says Chaney. Another jump in claims is expected next year if more devastating hurricanes and other natural disasters occur. On top of that, a proposal in Congress could also boost annual premiums by as much as 20% as part of a plan to overhaul the federal government's flood insurance program, itself underwater by $18 billion.
These higher premiums come just as natural disasters are happening more frequently, says David Neal, director at Oklahoma State University's Center for the Study of Disasters and Extreme Events. There is now a 50% chance that at least one major hurricane will hit the East Coast this year, up from 31% historically, according to a study from Colorado State University. Earthquakes are also becoming more common: On average, 15 magnitude-7 earthquakes occur worldwide each year, says Dr. Harley Benz, a seismologist at the U.S. Geological Survey. But in 2010, that number spiked to 21, and already this year there have been seven, according to the USGS.
Not every homeowner needs the extra coverage. But while basic homeowners' insurance usually protects again fire and lighting, it often doesn't cover floods, earthquakes and other natural disasters. Consumers instead need to purchase additional policies. One thing to consider, say experts: Do you stand to lose more paying premiums every year or saving that money to possibly pay for repairs should a disaster occur? Over 10 years, flood insurance premiums could cost up to $27,340, for a high-risk home with $250,000 in coverage to rebuild the house and $100,000 to cover the contents, according to the Federal Emergency Management Agency, which runs the National Flood Insurance Program. The typical cost to repair a basement after a flood of six inches is about $25,000, not including the cost of replacing furniture, appliances or belongings, according to FEMA.
Of course, homeowners can also avoid these expenses by moving to less disaster-prone areas. Individuals can research the country's earthquake and flood zones for safer places to live. Also, before moving, check with a lender; most will tell borrowers they're moving into a high-risk flood zone and make sure they sign up for flood insurance.
No comments:
Post a Comment