Homeowner Insurance Premiums Likely to Rise After Sandy

The devastation of hurricane Sandy means that by the New Year, customers will soon feel the impact in the form of rising insurance premiums and deductibles.

November 03, 2012

It's likely that stock options won't be the only thing affected by the damage Sandy caused earlier this week. Customers will soon feel the impact in the form of rising insurance premiums and deductibles. Early estimates say damage from Sandy is between $10 and $20 billion, but experts believe the damage will be closer to $25 or $30 billion.

"Right now the focus is on bringing people to safety and cleaning up the disaster Sandy left in its wake. Insurance companies will pay to some policyholders but come the New Year, customers should expect increases in both premiums and deductibles as insurance companies recover their losses," says Darras.

While homeowners across the country can expect moderate increases, those who own property along the Eastern shore will be the most affected. This is impacted not only by the storm damage, but by recent laws enacted in Connecticut and other states to prevent insurance companies from making homeowners meet their deductibles before giving payouts from damage from Sandy and Irene last year.

"Consumers must remember that insurance companies also get hit hard in disasters. This new law protects consumers, but it strikes a significant blow to insurance company's bottom lines. I wouldn't be surprised if some insurers pulled out of some high-risk areas all together," says Darras.

While the insurance industry has the capacity to meet all payouts due to their large reserves and the (re)insurance markets, they also must think about their bottom line. The past three years has caused significant setbacks to the industry. In 2010, the U.S. fell prey to more natural disasters than the country had sustained in a single year in at least 60 years. A year later, in August 2011, Hurricane Irene caused $4 billion in damage on the East Coast alone and insurers in hardest hit states paid out over $200 million in claims for damage.

"If this devastating cycle of large-scale natural disasters continues, it could create a national problem for insurers in years to come. While the scope of Sandy's damage is not beyond the industry's capacity to cover the costs, what about the next hurricane, tornado, or blizzard," says Darras.