How Do Hazard Mitigation Measures Impact Homeowners’ Property Insurance Premiums?

Hazard mitigation measures, such as storm-resistant roofing and seismic retrofitting, can reduce the likelihood of significant home damage and save money in prevented future losses. For example, home retrofits to increase earthquake resilience can save up to $13 for every $1 invested, while retrofits to withstand high wind speeds save up to $6 per $1 invested.

Despite the potential savings, some hazard mitigation measures can be too costly upfront for homeowners to undertake on their own. According to 2018 estimates, roofing and vents with wildfire-resistant features typically cost more than $5,800, while the cost of retrofitting an existing roof to be wildfire-resistant can exceed $22,000. The cost of hazard mitigation projects varies widely depending on factors such as property size and location, materials, and contractors. For instance, installing hurricane shutters (including labor) can cost anywhere from $13,000 to over $19,000.

The Relationship Between Hazard Mitigation and Property Insurance Premiums

In theory, the logic behind investing in hazard mitigation is straightforward: homes less likely to suffer damage from natural disasters should cost less to insure. If insurers can reduce the risk of expensive claims, premiums should drop accordingly. However, the reality of insurance pricing is far more complex.

Following the principle of risk-based pricing, property insurers assess the likelihood of a claim based on risk factors, including the property’s location, age, construction materials, proximity to bodies of water, and vulnerability to specific disasters.¹ Because risk pricing involves thousands of variables, investing in hazard-resistant measures does not necessarily lower a property’s risk exposure in a way that will be reflected in lower premiums. For example, a home with state-of-the-art wildfire-resistant features may still be considered risky by insurers (and priced accordingly) if it is in a ZIP code with a high wildfire risk.

Overall, there is no uniform relationship between lowered risk (from hazard mitigation investments) and property insurance premiums.

State-Specific Approaches to Premium Reduction

Because hazard mitigation investments do not always translate to lower property insurance premiums, several states have taken steps to encourage homeowners to invest in these measures. States have taken two main approaches:

• Mandating that insurers offer discounts to homeowners who implement certain mitigation measures
• Providing financial incentives, such as grants or tax breaks, to help homeowners fund certain mitigation measures

Some states combine these approaches. The table below outlines examples of states using these approaches:

Each approach comes with challenges. Hazard mitigation grants are critical, but the amount of the grant depends on a host of factors, and the process to secure a grant is often complex and costly. Homeowners seeking grant funding must navigate several steps, including providing extensive documentation, selecting an approved evaluator and paying a related fee, soliciting and comparing contract bids, undertaking the renovations, and securing a specific certificate—all before accessing the grant. While the complexity of the process is understandable, it may deter eligible homeowners from pursuing hazard mitigation grants.

Conclusion

As natural disasters become more frequent and severe, the need for hazard mitigation will only grow. Homeowners looking to lower their insurance premiums through hazard mitigation must carefully research the policies of their insurer and locality, as benefits vary based on many factors, including the home’s location and the specific type of hazard mitigation measure undertaken.

Policymakers must find ways to scale and simplify programs that incentivize hazard mitigation. Widespread adoption of these hazard mitigation measures could reduce the physical destruction that a natural disaster leaves in its wake, benefiting everyone—from the federal government to private insurers to individual homeowners.

1. Please note that coverage and risk pricing work differently for flood risk because there is federal involvement in flood insurance coverage, in the form of FEMA’s National Flood Insurance Program.