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The increasing frequency of climate-related events in the US is driving up insurance premiums in certain areas, but it’s unclear how this affects home prices and affordability, prompting the need for further analysis, according to analysts at S&P Global Ratings.
S&P highlights significant differences in home insurance costs, partly based on the contribution of land to a property’s overall value.
In areas where land values exceed dwelling values, less coverage may be deemed necessary relative to the total property worth.
An analysis simulating sudden rises in typical insurance premiums suggests that homeowners with fixed-rate mortgages could effectively face an implied adjustable-rate feature, assuming limited flexibility in managing increased monthly expenses, says S&P analysts.
Additionally, considering the impact of future excess insurance premium payments on current home values, there’s potential for up to a 10% reduction in prices under certain conditions. This reduction is projected if premiums are expected to escalate by 20% annually over the next 20 years.
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