What to Do if You Lose Your Homeowners Insurance | Real Estate

Everybody knows how important homeowners insurance is – that’s why it can be rattling to be told by your insurer that you’ve just lost it.

Due to extreme weather events and natural disasters, insurers are losing money, even in states with low hurricane and wildfire risk.

As of May 8, there have been seven confirmed weather/climate disaster events this year in the U.S., with losses exceeding $1 billion each. These included five severe storm events and two winter storm events, according to the federal National Centers for Environmental Information. There were 28 separate billion-dollar weather and climate disaster events identified during 2023 – the highest annual disaster count in the 44-year record. 

Some home insurance companies are going out of business, according to the Consumer Financial Protection Bureau. In states such as Florida and California, several insurers have stopped selling policies or are scaling back operations. Some insurance carriers are being watched due to potential insolvency. Other companies have increased the price of insurance to the point where homeowners can’t afford it.

Homeowners are facing new decisions about insurance, often with limited time to consider their options. A 2023 report from digital insurance agency Matic found that American homeowners experienced a 35% decrease in available policies per homeowner.

If you lose your homeowners insurance, what should you do? The obvious answer is search for a new policy. But it isn’t always that simple.

That’s advice from Karl Susman, who owns the Susman Insurance Agency in Los Angeles. Susman often consults with legislators on insurance issues and has been an expert witness on insurance matters in state, federal and criminal courts across the United States.

Susman is based in a state that has had a lot of problems with homeowners insurance, but he says, “What’s happening in California is not unique. It’s happening everywhere.”

Several large insurers, including State Farm, Farmers, Allstate and others, have stopped writing or limiting new policies or and informed California homeowners that existing policies will not be renewed. This affects owners of single-family homes as well as landlords of rental properties.

In this era of climate change, it’s simply not a good climate right now for homeowners insurance. Nationally, insurance premiums rose 11.3% in 2023 and shot up 33.8% from 2018 to 2023, according to S&P Global Market Intelligence. In Texas, homeowners insurance rates have climbed the most in the country, on average, 59.9%; Alaska, the least at 6.4%.

If you get a letter from your homeowners insurance that you’re going to lose coverage, “You need to start looking at that very moment,” Susman says. He adds that the letter of nonrenewal from your homeowners insurance might indicate that you still have insurance for up to six months, but you should still start the process immediately.

“Logically, you’d say, ‘OK, I’ll check when it gets close to that date,’” he says. “But you can’t do that because you could be at a point where there’s nothing available at that moment. So the best thing to do is to start checking now, and if you can find something, then take it immediately.”

The CFPB advises homeowners notified of nonrenewal or cancellation to ask the insurer to reconsider. Call your agent or company representative and ask why. Depending on the situation, the insurer might take back their decision and renew your policy.

Your mortgage lender generally requires your property to be insured. If you stop paying for coverage or let the policy expire, the mortgage lender is allowed to buy insurance and charge you for it. This is called force-placed insurance or lender-placed insurance, according to the Consumer Financial Protection Bureau.

A force-placed insurance policy usually protects the lender, not you. Your cost can be twice as much as you’d regularly pay for insurance.

Under federal law, your mortgage servicer has to notify you at least 45 days before it charges you for force-placed insurance.

Hang on to the homeowners insurance policy that you have and don’t look for something better, but do protect it, Susman says.

“I tell everybody you have to keep your policy. You have to put your policy on auto pay, because if you miss a payment, and it lapses, it doesn’t matter if you’ve been with them for 30 years, they will not reinstate that policy,” Susman says. Right now, he says, shopping for homeowners insurance is “nonexistent. We call it hunting. Shopping means you pick and choose. Hunting is ready, aim, I got it, grab it, take it.”

Fortunately, because there are laws governing how homeowners insurance works, you’re not likely to lose your policy without any warning, says Barb Gavitt, vice president of education and curriculum for A.D. Banker, a national provider of insurance and securities prelicensing, exam prep and continuing education in Overland Park, Kansas.

“There are state insurance laws in place to protect consumers against insurance companies canceling or nonrenewing homeowners insurance for any reason,” Gavitt says. “They must have a very good reason, as specified in the law, and they have to give advance notice.”

But that doesn’t mean your homeowners insurance can’t be canceled suddenly and unexpectedly. It can.

“If they cancel midterm, it can only be for very specific reasons, such as nonpayment of premiums or providing false information on an application,” Gavitt says. “If a policy is cancelled midterm, the company is required to refund any unearned premium.”

Gavitt says the homeowners insurance industry is facing a lot of headwinds right now that are causing companies to drop homeowners as customers. One factor is inflation – it’s getting more expensive to rebuild homes, cutting into the insurance industry’s profits. Still, Gavitt, who has been in the insurance industry for over 30 years, says that extreme weather events and more frequent natural disasters are the main culprits.

“Climate change is responsible for lengthening hurricane season, strengthening storm surges, longer wildfire seasons and higher sea levels causing flooding,” Gavitt says. “Floods, hurricanes and wildfires are not confined to just these states, and these are not the only impacts of climate change. All states are affected by climate change in some way.”

You might struggle to find new homeowners insurance, but if nothing is available or desirable, there is an option: Fair Access to Insurance Requirements (FAIR) plans are offered in about two-thirds of the country.

FAIR plans are state-mandated property insurance plans that provide coverage to individuals and businesses who are unable to obtain insurance in the regular market, according to the insurance association. These plans are typically used as a last resort and provide basic coverage for properties that are considered high-risk or difficult to insure due to factors such as location, age or type of construction. Risk factors include natural disasters, changes in building codes and rising insurance costs. 

The key phrase here is “last resort.”

“It’s very bare bones coverage,” Susman says. “There’s no coverage for theft, water damage, liability. It’s designed to be high-risk.

It’s essentially “fire insurance,” he adds.

Both Susman and Gavitt think so.

“State regulators in California, Florida and Louisiana have all proposed and passed legislation to help ease the burden on homeowners, but things may get worse before they get better,” Gavitt says.

The task force’s goalassociation’s is to ensure that the insurance industry can continue to co-exist with a future that will likely have increasingly more, and more expensive, natural disasters.

Susman sees a lot of hope, particularly for California, in the near future. He thinks by next year, thanks in part to a plan proposed by the California insurance commissioner to stabilize the market by 2025, homeowners may have less trouble getting their homes insured.

States and the insurance industry will figure something out sooner rather than later, Susman predicts. That’s because insurers, if they want to be in a profitable industry, have no choice but to make homeowners insurance work better.

“It isn’t working for anybody right now. We’re paying a ton of money and hating it, and insurers are losing money and hating it,” Susman says. “But we have to have insurance.”