Climate change is making storms and wildfires more intense, leading insurers to hike rates and drop out of risky markets.
How fast are rates rising?
The cost of insuring the average U.S. home has spiked nearly 38 percent since 2019, to $2,478 annually, according to a report by the broker LendingTree. That's the national picture, but the rises are steeper in areas hit hardest by climate and weather-related disasters. In hurricane-prone Florida, premiums climbed 42.5 percent over that period; in Arizona, 62.1 percent. One California resident who lives in the wildfire-scorched hills north of Sacramento saw her premium leap fivefold this year, from $3,531 to $19,310. The struggle to find affordable coverage is being made even harder by the exit of many providers from high-risk areas. Allstate paused sales of new homeowners policies in California in 2022, citing in part "more frequent and severe weather," and State Farm did the same last year. Similar pullouts are taking place in Florida — where the taxpayer-backed Citizens Property Insurance is now the state's largest insurer — as well as Illinois, Indiana, and Ohio. Those Midwestern states were once seen as havens from climate shocks but are now suffering more frequent and intense storms. "I believe we're marching toward an uninsurable future" in many places, said Dave Jones, head of the Climate Risk Initiative at the University of California, Berkeley's law school.
Why are insurers taking these steps?
Because they've been losing money for a decade. Home insurers paid out more in claims than they received in premiums in 18 states last year, up from 12 states in 2018 and eight states in 2013, a New York Times analysis found. Last year was the most painful for the industry since 2011, with home insurers losing more than $101 billion. Faced with worsening climate and weather disasters, the reinsurance policies that insurance firms buy to make sure they can cover such events have become more expensive. The Texas Windstorm Insurance Association, a high-risk insurer along the Gulf Coast, paid $206 million for reinsurance last year, a 63 percent jump from 2022. To cover those costs, insurers either have to hike rates or become much more selective about where they do business. "Climate change is real," said Bill Montgomery, CEO of Celina Insurance Group, which exited Iowa in 2022 after paying out $1.5 million more in losses than it took in premiums. "We can't raise rates fast enough or high enough."
Are other factors pushing up prices?
The spike in premiums is also partly a result of properties getting more expensive, because as home prices climb — they're up nationally about 28 percent since 2019 — so does the cost to insure them. Then there's the effect of Covid-era inflation and supply chain disruptions, which helped drive up home rebuilding and replacement costs by 55 percent from 2020 to 2022, according to the Insurance Information Institute, resulting in bigger insurance payouts. The home insurance sector has weathered tough periods before — including sustained losses from 2008 to 2012 — but experts say climate change has upended the industry's core financial model. That model was designed to balance good and bad years, but the bad now outnumber the good. Last year, the U.S. endured a record 28 climate and weather disasters that each caused at least $1 billion in damage; 2020 held the previous record at 22. In the 1980s, there were 33 such billion-dollar disasters over the entire decade.
What are the consequences of this turmoil?
For many homeowners, the result is economic hardship. Diana Troxell, 76, discovered last year that her insurer was not renewing the $1,910 policy on her manufactured home in rural Cottonwood, Calif., because of wildfire exposure. She and her husband now pay $6,660 annually through California's FAIR plan, an insurer of last resort. "We're in 'How are we going to do this?' mode," Troxell said. "We're living month to month." Some Americans who own their properties outright are bailing on insurance entirely — 12 percent of homeowners were uninsured in 2022, up from 5 percent in 2019 — while others are buying bare-bones plans that don't cover natural disasters. But going uninsured or underinsured carries immense risk. "It's very unrealistic for any homeowner to think they can pay for catastrophic losses out of pocket," said Mark Friedlander, of the Insurance Information Institute.
Can the insurance sector be stabilized?
The power to regulate insurers lies with states, which set maximum rate increases, the extent of coverage, and consumer protections. Some states like Louisiana and Washington are trying to make it easier for insurers to turn a profit — in a hope they won't exit the market — by accelerating the process by which they can raise premiums. Arkansas, meanwhile, recently let insurers increase the deductibles of people whose homes have been damaged by hail or storms. California, Minnesota, Georgia, and other states are trying to reduce potential losses by encouraging homeowners to make their properties more resilient — such as by installing fire or storm-resistant roofs — and then requiring insurers to offer discounts to customers that take those steps. But some experts argue that in a warming world with more dangerous weather, part of the solution will have to involve reducing or even stopping development in areas that are most vulnerable to storms, wildfires, and rising seas. "There could be parts of states that are just not suitable for insurance," said George Hosfield of LexisNexis Risk Solutions, "because really they're not suitable for home building."
How insurers' spy' on homes
As insurance companies try to "de-risk" their property portfolios, they're deploying an array of high-tech tools to decide which home policies to dump. Drones, manned airplanes, high-altitude balloons, and satellites fly over communities and take aerial photos, which are sorted by software that can red-flag underwriting risks such as overhanging tree branches, undeclared trampolines, and mossy roofs. Last fall, Nationwide dropped Rosemary Resler and her husband after 32 years, saying aerial images had revealed the 12-year-old roof on their North Carolina home was in "poor condition." "We were stunned," said Resler, who notes that an in-person inspection revealed the roof to be sound. "We'd been faithful customers, but there was no conversation." Such aerial surveillance is only going to intensify — the launch of new satellites should allow for images to be updated daily by 2030, said Neil Pearson, a consultant who works with imagery companies. "It could get interesting from a privacy standpoint [because] a property could be monitored daily at high resolution," Pearson said. "It is a bit Orwellian."
