A homeowner's guide to natural disasters.

Availability of Insurance

Location Can Affect Availability and Cost

The actual location of a property can be a primary determinant of insurance availability. Homes located in areas with a greater exposure to losses due to a particular peril pay a higher cost for coverage than areas not as exposed to that peril. For instance, homes in the Midwest pay a higher cost for tornado coverage, and those with greater exposure to wildfire, such as designated brush zones in California, may have difficulty finding coverage in the voluntary market.

Another thing that affects the availability of insurance is pending event. For example, in many cases, if a hurricane or a wildfire is approaching, insurance companies issue temporary moratoriums on binding coverage, and no new coverage can be written in that area threatened by the peril.

Exposure to Earthquakes
When living on or near major faults, homeowners are more exposed to earthquakes. Consequently, they may find fewer choices available to them for coverage against earthquakes. Also, the soil type in certain areas may be more susceptible to earthquake damages for homes built in these areas than for homes built in other areas. The closer an area is to a fault and the less stiff the soil is in an area, the fewer insurers may be willing to accept the risk of earthquake coverage in that area.

Recent earthquake activity can also be a determinant of earthquake insurance availability. As more earthquakes occur, more companies are likely to experience significant claims from earthquakes, and subsequently become financially distressed. These companies may find it difficult to provide coverage to the same volume of policyholders, and this can cause an overall availability problem. In certain areas, state associations are established to ensure insurance availability in times of need. These publicly run entities provide insurance coverage when availability and affordability problems arise.

Exposure to Hurricanes
Homes in coastal areas in the southeast U.S. are more exposed to hurricanes than homes in other areas, so homeowners in these areas may find fewer choices available to them for coverage against hurricanes. The closer an area is to the coast and the further south that area is, the fewer insurers may be willing to accept the risk of hurricane coverage.

Similar to the effects earthquakes have had on insurance availability, storm activity can also be a determinant of hurricane insurance availability. As storm and subsequent claim activity rise, insurers may be inclined to write fewer policies. Here again, publicly run entities, created to fill the gap, provide insurance coverage when availability and affordability problems occur.


Your Home’s Features Can Affect Availability

An individual homeowner can encounter the same availability problems as mentioned above. Additionally, if a home has unusually hazardous features, insurance companies may be unwilling to provide coverage. Some of these features could be inferior construction, a hazardous roof shape (or covering, such as wood shakes), an unbolted frame, an unsecured chimney and/or water heater, external hazards such as awnings or other exterior ornamentation, certain older structures not up to current code, and a general lack of maintenance of the home.


Ensuring the “Insurability” of Your Home

Homeowners can ensure the insurability of their homes by keeping them up to the applicable building codes, by performing regular maintenance, and by implementing some of the loss mitigation measures mentioned in the following pages. Also, by keeping informed of the changes in the local insurance environment, homeowners can better evaluate the insurance options available.