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The mysterious companies you have never heard of pushing up your home insurance premium
A little-known element of the insurance industry is pushing up homeowner premiums, consumer advocates are warning.
The cost of reinsurance has boomed in recent years, and now the higher prices are trickling down to regular Americans - making their coverage increasingly unaffordable.
Reinsurance is effectively the insurance taken out by insurers. It transfers on some of the risk so that no company has too much exposure to a potential catastrophe.
But as climate change is driving an increased risk of property loss across the US, this arcane part of the product is getting a lot of attention, said Douglas Heller, director of insurance at the Consumer Federation of America.
'I've been doing insurance consumer advocacy for 25 years and never in that time have I seen as much attention on the pain that consumers are feeling in the insurance market as I see now,' Heller told DailyMail.com.
Climate change is driving an increased risk of property loss across the US (Pictured: Destruction left behind in the wake of Hurricane Ian in Florida in 2022)
'The reinsurance market has been unrelenting in its pricing over the past seven years,' Heller explained.
'It's an understatement to say that it trickles down into our policies. It's pouring down into our policies.
'Because in most states, much, if not all, of that reinsurance cost gets flowed right into the premiums consumers pay.'
Because of climate change, he explained, the risk of loss has grown.
Earlier this week Governor Ron DeSantis declared a state of emergency in five Florida counties after dangerous rainfall hammered the state.
So insurance companies want more reinsurance to fill that growing exposure, but the market of reinsurance sellers is not growing in terms of the capital available.
This creates a seller's market.
'So that just empowers those reinsurance companies to trot around the globe and find the highest price relative to the risk they're willing to take on,' Heller said.
According to a report released this month by AM Best, the largest credit rating agency in the world specializing in the insurance industry, the reinsurance market globally had a 22.5 percent return on equity in 2023.
The return on equity effectively measures profitability.
'This return on equity is dramatically higher than their average over the last six years which was around 8 percent,' Heller said.
'That's what happens when you have a seller's market. And it's not a battle of one set of corporations versus another set of corporations.
'It's a battle between corporations and consumers that's mediated through the insurance companies that sell us our policies - but it's paid for on the backs of homeowners and businesses who are struggling to afford coverage.'
Zurich-based firm Swiss Re, for example, which is one of the largest reinsurance companies in the world, reported a net income of $552 million from property and casualty reinsurance alone in the first quarter of 2024.
Bermuda-based insurance and reinsurance provider Everest Re, meanwhile, reported a net income of $733 million for the first quarter of this year.
'The reinsurance market has been unrelenting in its pricing over the past seven years,' Douglas Heller explained
Some Americans are being forced to opt for limited policies that do not include fire or flood coverage.
Others are having to fork out for a pricey policy with an insurer of last resort in their state - or are simply moving to a different state in the hope of finding cheaper deals.
Others are choosing to abandon home insurance entirely, putting themselves at risk of significant losses.
And most are seeing their premiums soar.
Grim forecasts released earlier this year predicted that the typical annual home insurance premium for the US as a whole will rise to $2,522 by the end of 2024.
This is up 6 percent on 2023, according to insurance comparison platform Insurify.
But those in higher risk states face much more punishing prices.
Homeowners in Florida already pay the highest premiums for coverage in the US, at an average of $10,996 a year in 2023.
And according to Insurify's projections, this will increase a further 7 percent this year, hiking the typical premium in the state to a staggering $11,759.
'When you think of weather disasters and when you think of high insurance rates, you naturally think of the coast and you think of hurricanes in states like Florida,' said Christopher Schafer, home insurance editor at Insurify.
'But what we're also seeing now is that the reinsurance market is getting much more volatile in other parts of the country that you wouldn't expect - in places like the Midwest.'
He explained that a lot of storms are not meeting the reinsurance threshold for insurers, and reinsurers have changed their policies. This means that insurance companies are being asked to take on additional losses.
'This is a bad situation all around. And reinsurers are using their leverage to make sure they get the best of a bad situation and to try to avoid catastrophic loss,' Schafer told DailyMail.com.
The typical annual premium will rise to $2,522 by the end of 2024, according to predictions from insurance comparison platform Insurify
The reinsurance market is becoming more volatile in parts of the country that you wouldn't expect, said Christopher Schafer, home insurance editor at Insurify
Is anyone pushing back against these price rises?
Earlier this year, California Congressman Adam Schiff introduced a bill that would create a federal reinsurance program to help stabilize the market and insulate consumers.
'There are some efforts at least to get the conversation going and hopefully get some reforms and legislation passed,' said Heller.
'I think this is not a moment to say "markets go up and down",' he added. 'This is a moment in which policymakers, regulators and industry has to take action, and that's going to require some changes in the way that this business works.
'People's lives are at stake. We require people to buy the product. And so there's a special obligation to make sure that prices are fair and that coverage is available.'
He pointed out that while the government were quick to act and shared losses on terrorism insurance in the wake of 9/11, it has yet to step in during the current crisis.
Consumers can also play their part to help minimize the pain, he said.
The best thing that Americans can do is shop around for a better offer.
The industry has relied for a long time on the fact that insurance is complicated. They know most of us don't switch, he said, and it could save you hundreds of dollars if you do.
Be aware of what you're getting into with each policy he warned, because companies are selling policies that have lower quality coverage.
'We are seeing in places where it's harder to find insurance, like Florida for example, companies that are selling policies that are called surplus lines, or excess and surplus. But they're not regulated by the states,' he added.
'When homeowners are buying policies for the most significant asset they own, and they're in the surplus line policy, that's very, very risky.'
Schafer, from Insurify, also encourages consumers to take steps which can improve their insurance rate.
These include improving your credit score or repair or replacing damaged or outdated features in your home.