Are Insurance Losses in High-Risk States Driving Rate Increases in Lower-Risk Markets?

Homeowners in lower-risk insurance states — the ones not battered by hurricanes, wildfires, budget-busting premiums and insurance companies’ mass exoduses — might breathe a sigh of relief reading headlines about problem states like Florida and California. After all, if you don’t live there, it’s not your problem. But, that may not always be the case. From July 2023 to July 2025, the average cost of home insurance went up over 9 percent, with some areas of the country seeing raises as high as 40 percent. Not all of these states are vexed with home insurance crises, so why do rates keep going up?

Heavy insured losses driving higher home insurance rates and nonrenewals

A study published in the Journal of Finance found that home insurance companies often elect to adjust rates in less-regulated states to make up for losses in states with tighter insurance regulations. More specifically, home insurance rates in less-regulated states “respond to losses in highly-regulated states.” Even if a major loss doesn’t occur in your state, you could still end up being the one paying for it. Around 30 percent of home insurance rate increases in less-regulated states can be traced to out-of-state insured losses, according to the study.

Why are some states hit with larger rate raises than others? The answer lies with an 80-year-old piece of legislation, the McCarran-Ferguson Act. Originally passed in 1945, the McCarran-Ferguson Act gives states — not the federal government — the authority to regulate insurance companies. Each state sets its own rules governing how insurance companies can price their policies.

States differ widely in just how regulated the insurance companies are. In California, for instance, home insurance companies need to seek the approval of the California Department of Insurance before new home insurance rates can take effect. In Texas, insurance companies can begin using new rates straight away, and seek the Texas Department of Insurance’s approval later.

States that use a file-and-use rating system allow insurers to respond to losses faster, improve policy availability and allow companies to accept a broader range of applicants, according to the Property Casualty Insurers Association of America. However, the Journal of Finance study also indicates that carriers may be taking advantage of states with more lenient insurance regulation to increase rates and offset losses in more highly-regulated markets.

Across the country, 38 states and Washington, D.C., use some version of a file-and-use system, while the remaining 12 states operate under a prior approval system.

Just because a state operates under a file-and-use system doesn’t mean insurance companies can charge you whatever they want; there is still some regulatory oversight.

In every state, insurers must prove that their new rates are actuarily sound, according to Lauren Menuey, director of carrier relations at Goosehead Insurance. “I don’t think you can really subsidize rates in one state for another, because you have to be able to justify what you’re charging,” says Menuey. Rates must be adequate, meaning insurers are allowed to charge enough to remain solvent and be able to pay out claims. However, rates cannot be excessive or intended to solely help a company earn better profits. Rates also may not be unfairly discriminatory.

From 2023 to 2025, the national average cost of home insurance went from $2,261 to $2,470 per year — an increase of more than 9 percent.

Pricier home insurance policies and high rates of nonrenewals tend to go hand in hand. A report from the U.S. Senate Budget Committee found that, from 2018 to 2023, the rate of home insurance nonrenewals increased in 35 states. By 2023, 18 states and Washington, D.C., had a 1 in 100 home insurance nonrenewal rate. The same report found that higher rates for policy nonrenewals correlated with higher premiums. Some of the “problem” states, like Florida, California and Louisiana, had high nonrenewal rates. But, there were a few surprises toward the top of the list. North Carolina had the third-highest nonrenewal rate in 2023, while Massachusetts was ranked fifth. Connecticut and Rhode Island were also ranked among the top ten states for home insurance nonrenewals.

Are home insurance companies allowed to leave certain markets? 

In the U.S., property and casualty insurance companies are, for the most part, private, for-profit institutions. If they say they’re losing money in a particular state, they also lose the incentive to write new policies in that claim-prone area.  “I have argued over the years, and many attorneys argue that insurance companies….are a quasi-utility,” says Amy Bach, executive director of United Policyholders, a consumer advocacy nonprofit. “Insurers have steadfastly resisted that perspective and have maintained that they are not utilities.”

A utility company, like a gas or electric company, is legally obligated to service certain communities. While an insurance company does have a fiduciary duty to pay out covered claims to its policyholders, it can use discretion when choosing where it writes policies that generate those claims.

How to keep home insurance costs low 

The home insurance industry is facing strong headwinds with a rise in extreme weather events and an increase in building materials costs. Erika Tortorici, owner and principal of Optimum Insurance Solutions, says homeowners shouldn’t hold their breath waiting for rates to drop. “The days of insurance premiums decreasing are sadly not going to be around anymore,” she says. “Carriers always say it’s going to get better in 2023; it’s going to get better in 2024. I heard 2025, and now I’m hearing 2026.” At best, homeowners can hope for rates to plateau, says Tortorici. Menuey agrees: “It doesn’t seem to be getting worse, which is a good thing. I haven’t been able to say that for years.”

It can be frustrating to watch your home insurance rates tick up, especially if your risk level hasn’t changed substantially. There are a few things homeowners can do to help keep their home insurance costs stable. First, Tortorici advises homeowners to only file claims when absolutely necessary: “Putting in a small claim can help you get $2,500 paid now, but could cost you $10,000 over the course of losing a claims-free discount.” Not only does filing a claim void any claim-free discounts, it’s also a near-guarantee that your rate will go up when your policy renews. Filing a $12,000 wind damage claim, for instance, raises home insurance rates by an average of $125 per year, according to Bankrate’s analysis of average rates from Quadrant Information Services.

Tortici also urges people not to neglect basic home maintenance. As the weather gets warmer, she suggests trimming any overhanging limbs that are set back from your house. “It helps with water damage, bug infestations and can help prevent wind damage.”

The bottom line

It’s never great to hear that an obligatory expense, like home insurance, isn’t getting cheaper. But, rate raises are sometimes necessary. When the price of rebuilding a home increases, home insurance rates usually rise in tandem. If they didn’t, carriers risk financial insolvency and pulling out of some states.

Market macrotrends will always play some role in what your insurance policy costs, but your personal rating factors count, too. If you take care of your property, take steps to prevent damage, are intentional about filing claims and maintain good credit, you’ll be better off weathering the home insurance storm.