Insurance costs are rising across the U.S. as climate change-related disasters become more common. This is not just the case in Florida and California, which are the most vulnerable states.
The Los Angeles fires that have destroyed neighborhoods like Pacific Palisades, Altadena and others, bring to light a growing insurance crisis, especially in the states most at risk from wildfires such as California. Colorado, Texas, and Oregon. The problem has spread to almost all regions of the U.S. including the Midwest and Northeast, as well as the Mountain States, according analyses of insurance data.
Climate change, according to research, is increasing the conditions conducive to fires. This includes drying out vegetation and limiting water supply. These conditions prolong the wildfire season and increase the intensity of fires.
“Serious Pocketbook Issue”
According to research by economists from the University of Pennsylvania Wharton School and University of Wisconsin, the average homeowners insurance premium rose 33% between 2020 and 2023. It went from $1,902 to $2,530 per year. Inflation rose 18% in the same period.
These costs have risen even more in areas of the U.S. that are prone to natural disasters, which experts attribute to climate change. According to Benjamin Keys a professor of real estate and finance and co-author the 2024 study, homeowners in these states saw their insurance rates soar by 50% during that three-year span.
Even property owners who live in states that are considered to be less vulnerable to climate catastrophes face increased insurance costs or cancelled policies, which threaten to reduce the value of their property.
CBS MoneyWatch reported that “we’re seeing this for the fifth year in a row – increases in insurance costs – and they are correlated to increased severity of climate event,” Jeremy Porter said. Porter is head of climate implications at First Street, a nonprofit research firm which models climate risk. It’s surprising that Kansas, Nebraska and other places in the middle are seeing such large increases in insurance costs.
Bankrate data shows that while the average U.S. homeowner’s insurance rate is $2,300 annually, Nebraskans spend an average $5,700 per year. Oklahomans, on the other hand, pay about $4,800 per year — not far off Florida’s average $5,500 annual rate.
Researchers have discovered that insurers are increasing premiums in response to wildfires, flooding, and hurricanes becoming more frequent and intense. This is to recover their losses. First Street research shows that homeowners’ insurance cost 7.5% of a typical mortgage in 2000. By 2023, this figure has risen to 22%.
In a webcast on Jan. 10, Keys, a Wharton professor, said that the increase in insurance premiums was a “serious pocketbook issue.” “That’s the kind of thing you bring up at the dinner table to ask, should we move?”
Dropped policies across the country
Some homeowners face not only higher insurance rates, but also difficulty in obtaining coverage.
The non-renewal rate has risen sharply in California, and Florida. This is because the state’s Fair Access to Insurance Requirements (FAIR) plans have seen an increase in enrollment. Last year, insurers dropped thousands of homeowners from Los Angeles just months before wildfires.
It’s a fire hazard. You know, it’s a danger to fire. Jeff Cohen’s Altadena home, which was destroyed in the fires of this month, said to CBS News that his insurer had dropped him before the disaster. The state’s FAIR Plan offered a more expensive policy for him and his wife.
According to a Senate Budget Committee report released last week, it’s not just homeowners in California, Florida, and Louisiana that are being dropped by their insurance companies. Oklahoma ranked highly in the list of top 10 states that insurers did not renew their policies. This was likely because the state is prone to wildfires and coastal states.
Analysis found that the next 15 states to have high rates of non-renewal in home insurance coverage include Midwestern and Mountain states, including South Dakota, Montana and Nebraska. The data shows that Florida’s non-renewal rate has more than tripled between 2018 and 203. Oklahoma isn’t far behind with a nearly doubled rate of policies dropped over the same period.
Porter of First Street noted that “a volatile atmosphere leads to more intense storms and heavy precipitation.” They are linked to climate change and the fact the air temperatures and sea are warmer. Winds are affected in a more volatile way.
Porter pointed out that the heavy rains in Vermont in July 2024 which led to damaging flooding, and Hurricane Helene’s destruction, in North Carolina, last year are examples of these more destructive weather events.
The Senate report noted that “the data clearly show that non-renewal of insurance is not a problem only for communities who are typically seen to be on the frontlines of climate change.” “Florida California and Louisiana were seen as canaries in a coal mine.”
Researchers added that “[P]laces like southern New England and parts of Montana and New Mexico as well as coastal and inland North Carolina and South Carolina are not far behind.”
Are you at risk of losing your property value?
The majority of Americans who own homes in the U.S. also have a property insurance policy. This is because mortgage lenders require it to protect their investment from damage caused by theft, accidents or storms.
According to the Brookings Institution, as climate-related catastrophes increase, insurers adjust their risk models, raise premiums, and buy more reinsurance to meet their increased capital reserve needs.
In extreme cases, property values could plummet if those areas become uninsurable. This is a problem that has already affected some communities. Property values may plummet in some extreme cases if areas are rendered uninsurable. This is a problem that has already affected some communities susceptible to wildfires, and other weather events.
Experts say that homeowners in the United States who are burdened with high insurance costs will not see relief any time soon.
Porter stated that “we’re in a period of price corrections for insurance — these will continue until the insurance companies can be profitable.” No matter where you live in the United States, you’re exposed to climate hazards.
