The insurance crisis reshaping housing

Transcript:

Allie Barefoot: I’m Allie Barefoot with Cotality and this is Data in Context. As many homeowners know, costs do not stop at closing. Month after month, the mortgage payment is due and these bills can grow larger as insurance premiums rise. For many homeowners, that stress grows even higher as events like hurricanes, floods, and wildfires come into their life.

Natural disasters don't just drive premiums higher. They force costly rebuilding, especially for homeowners that want to make their homes more resilient. But Cotality data shares an important story: homeowners who take the time to mitigate their properties usually end up paying less over time. But is that really sustainable? That's why today we're going to be talking with Russell McIntyre, Cotality's Public Policy and Industry Relations Principal, and we're going to explore how policy can help mitigate the rise of insurance and lay a foundation for a stable future. So, let's jump into it. Russell, thank you so so much for joining me on Data and Context.

Russell McIntyre: Yeah, so happy to be here. I'm a fan of the format and happy to be one of the first videos we get out there.

Allie Barefoot: Oh, thank you very much. So, I'll just go on ahead and jump into the main question here because it's kind of a reality that is a little bit harsh on a lot of people: insurance premiums can be very scary, especially when you're looking at all the bills you have to pay while budgeting for the month or the year. I want to start by asking: could insurance affordability become as important of a factor in the home buying process as a mortgage or property taxes?

Russell McIntyre: Yeah, absolutely. As you alluded to there, when prospective home buyers are looking through the financial implications of purchasing a new home and working through their budget, one of their main concerns is how much this is going to cost on a month-to-month basis. The recent rise in insurance costs has really thrown a wrench into that calculation, especially in areas with lower median incomes. These cost increases are really squeezing family budgets.

Allie Barefoot: That makes total sense. I mean, I have to budget my grocery list, let alone the bigger payments. With premiums climbing year after year, and reaching a point where some home buyers simply can't afford coverage, what does this mean for housing stability moving forward?

Russell McIntyre: In many areas of the country, they're dealing with the ramifications already. I saw a study last year from an insurtech platform, Matic, that showed roughly two-thirds of homes are underinsured, mainly because coverage amounts have failed to keep up with rising premiums. These insurance rates are projected to keep climbing year-over-year unless we take action, which has ramifications for broader housing stability.

I think back to last December when there was a Senate budget committee hearing in D.C. where experts testified on this issue. They noted that as more people become underinsured, you're going to see property values decline. Some properties will become unmortgageable, and that could lead to systemic risk to the overall U.S. economy given a potential wide-scale decline in home values—especially in areas around the coast or in wildfire-affected areas.

Allie Barefoot: You mentioned wildfire-affected areas. When we think of rising insurance premiums, the number one thing that comes to mind are natural disasters. That's what skyrockets the prices in the first place. With the latest wildfire season in California and the devastating impact of recent hurricane seasons, how are natural disasters reshaping the way policymakers think about risks and insurance premiums?

Russell McIntyre: I think this has affected their mindset in two main ways. First, on risk, they're realizing that natural hazard risk is much more widespread than previously thought. Flooding isn't just an issue on the coast; we've seen record amounts of inland and riverine flooding from central Texas up to the mountains in Vermont. Wildfires aren't just a California problem; we're seeing them pop up more frequently east of the Mississippi, from the Carolinas to New Jersey. You see Tornado Alley moving farther and farther east every year into states like Ohio, Tennessee, and Alabama. Most homeowners across the country face a complex risk profile. Someone living in eastern Missouri, for instance, might face tornado, wildfire, hail, and riverine flooding risks—all of which have to be considered.

Second, on premiums, I think policymakers are starting to realize the importance of insurance premiums as a price signal. Over the past several decades, we've constructed homes in areas where, simply put, we should not have built—whether along the Gulf Coast or deep in the wildland-urban interface. We're migrating into areas of higher risk. Some policymakers, mostly at the state level right now, want to alleviate price concerns for constituents, but they also want to discourage relocation or new development in these high-risk areas. Having insurance costs that accurately reflect the underlying risk can really help in that effort.

Allie Barefoot: Right. Just because you're not on a coastline or directly in Tornado Alley doesn't mean you won't face a natural disaster and a rising premium. Are policymakers beginning to look at this from an individual level, or is it more of a community level where they want to take action?

Russell McIntyre: Thankfully, they're looking at both. We know that natural disasters do not respect property lines. While it's important that every homeowner hardens their own property, resiliency planning must extend to the broader community. Most of these conversations are happening at the state and local level because those officials have seen firsthand how important resiliency measures can be.

At the local level, these efforts fall to community planners and zoning boards. One example out west is creating a fire break (or fuel break) by thinning flammable vegetation around the outside of a community. This conversation happens during the planning and zoning processes. Unfortunately, many of these actions can be very expensive and beyond the capacity of municipal budgets. We've seen some cities have success using municipal bonds to raise money for public infrastructure projects.

Every U.S. state and territory has its own emergency management department. While most focus on post-disaster recovery, many are starting to turn their attention and budgets to pre-disaster mitigation efforts. One great example would be a state creating a retrofit grant program. We've seen amazing success stories, like Alabama's "Fortified Home" program, which provides homeowners up to $10,000 to mitigate against wind damage. A number of other states are now replicating that program.

Allie Barefoot: Absolutely. Cotality data shows that homeowners who take precautions to mitigate their properties usually pay less over time. But at what point does that really become the sustainable option? Making homes resilient isn't a cheap process. A lot of builders are now shouldering the cost to put in mitigation resources, and often that cost gets trickled down to the homeowner. How can the government help alleviate that increasing burden?

Russell McIntyre: There is a role for all three levels of government. Starting at the local level, municipalities can reduce "soft costs" associated with new home construction, like local zoning ordinances that dictate specific architectural styles or materials. Not every town has updated zoning laws to account for newer, more resilient materials. When regulations aren't conducive to resilient construction, the timeline gets longer and costs for developers pile up in legal fees and property taxes. Updating these laws would save developers time and money.

At the state level, grant programs like the one in Alabama help provide renovation costs for wind-resistant roofing or storm-proof windows that often exceed family budgets. Finally, the federal government has the most important role: providing funding. The costs to retrofit our entire country are well beyond the capacity of state and local governments. It’s going to require a massive investment from the federal government.

Allie Barefoot: At what point do we have to ask: is this beneficial? Are all of these costs worth it?

Russell McIntyre: It’s a good question. Study after study has shown that upfront resiliency investments pay for themselves multiple times over compared to the cost of recovery. Every $1 invested in resiliency leads to anywhere from $7 to $13 in savings post-disaster. Upfront costs are huge—I think we will need to spend hundreds of billions of dollars over the next decade—but that is a drop in the bucket compared to what we spend on post-disaster recovery because we weren't prepared.

I grew up in the foothills of western North Carolina, so I've been paying close attention to the recovery following Hurricane Helene. NOAA estimates the total economic cost of Helene to be roughly $80 billion. That’s just for one storm. Last year alone, the U.S. had 27 confirmed disaster events that each exceeded a billion dollars. The combined cost of disasters in 2024 is estimated between $250 to $300 billion, which I think is an underestimate because recovery is still ongoing. The price of retrofitting is high, but the cost of doing nothing is exponentially greater.

Allie Barefoot: Whether it's pre- or post-disaster, there are going to be costs. Like you said with Asheville, North Carolina, many people didn't have flood insurance because they weren't on the coast, but storms go wherever they please. Moving forward, what do you see as the long-term implications for the housing market if insurance premiums continue to rise this way?

Russell McIntyre: I’ll focus again on the importance of month-to-month costs. That's how people budget. If these costs continue to increase, we're going to see increased delinquencies, especially among low-to-moderate-income homeowners who are already struggling. In a healthy market, you would see people downsizing or migrating to find affordability, but we have a historic lack of supply combined with high interest rates. People are not moving. These homeowners who are facing high insurance rates don't have many options. I expect a lot of them might turn to renting as the cost of homeownership becomes too great. Long-term implications can be quite dire if we don't start investing in these efforts now.

Allie Barefoot: Well, let's hope these efforts start ramping up so we can see fewer delinquencies in the future. That is all I have for you today. Russell, thank you again for taking the time to sit down with me. I look forward to having more conversations in the future—hopefully about premiums not escalating!

Russell McIntyre: Of course, great to talk to you, Allie.

Allie Barefoot: Thank you again to Russell for joining me on Data and Context, and thank you guys so much for listening. If you haven't already, drop a comment down below, hit that like button, and be sure to subscribe so you guys are completely in the know.

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