By Andrew J. Hoffman*
Millions of Americans have been watching with growing alarm as their homeowners insurance premiums rise and their coverage shrinks. Nationwide, premiums rose 34% between 2017 and 2023, and they continued to rise in 2024 across much of the country.
To add insult to injury, those rates go even higher if you make a claim – as much as 25% if you claim a total loss of your home.
Why is this happening?
There are a few reasons, but a common thread: Climate change is fueling more severe weather, and insurers are responding to rising damage claims. The losses are exacerbated by more frequent extreme weather disasters striking densely populated areas, rising construction costs and homeowners experiencing damage that was once more rare.
Parts of the U.S. have been seeing larger and more damaging hail, higher storm surges, massive and widespread wildfires, and heat waves that kink metal and buckle asphalt. In Houston, what used to be a 100-year disaster, such as Hurricane Harvey in 2017, is now a 1-in-23-years event, estimates by risk assessors at First Street Foundation suggest. In addition, more people are moving into coastal and wildland areas at risk from storms and wildfires.
Just a decade ago, few insurance companies had a comprehensive strategy for addressing climate risk as a core business issue. Today, insurance companies have no choice but to factor climate change into their policy models.
Rising damage costs, higher premiums
There’s a saying that to get someone to pay attention to climate change, put a price on it. Rising insurance costs are doing just that.
Increasing global temperatures lead to more extreme weather, and that means insurance companies have had to make higher payouts. In turn, they have been raising their prices and changing their coverage in order to remain solvent. That raises the costs for homeowners and for everyone else.
The importance of insurance to the economy cannot be understated. You generally cannot get a mortgage or even drive a car, build an office building or enter into contracts without insurance to protect against the inherent risks. Because insurance is so tightly woven into economies, state agencies review insurance companies’ proposals to increase premiums or reduce coverage.
The insurance companies are not making political statements with the increases. They are looking at the numbers, calculating risk and pricing it accordingly. And the numbers are concerning.
The arithmetic of climate risk
Insurance companies use data from past disasters and complex models to calculate expected future payouts. Then they price their policies to cover those expected costs. In doing so, they have to balance three concerns: keeping rates low enough to remain competitive, setting rates high enough to cover payouts and not running afoul of insurance regulators.
But climate change is disrupting those risk models. As global temperatures rise, driven by greenhouse gases from fossil fuel use and other human activities, past is no longer prologue: What happened over the past 10 to 20 years is less predictive of what will happen in the next 10 to 20 years.
The number of billion-dollar disasters in the U.S. each year offers a clear example. The average rose from 3.3 per year in the 1980s to 18.3 per year in the 10-year period ending in 2024, with all years adjusted for inflation.
With that more than fivefold increase in billion-dollar disasters came rising insurance costs in the Southeast because of hurricanes and extreme rainfall, in the West because of wildfires, and in the Midwest because of wind, hail and flood damage.
Hurricanes tend to be the most damaging single events. They caused more than US$692 billion in property damage in the U.S. between 2014 and 2023. But severe hail and windstorms, including tornadoes, are also costly; together, those on the billion-dollar disaster list did more than $246 billion in property damage over the same period.
As insurance companies adjust to the uncertainty, they may run a loss in one segment, such as homeowners insurance, but recoup their losses in other segments, such as auto or commercial insurance. But that cannot be sustained over the long term, and companies can be caught by unexpected events. California’s unprecedented wildfires in 2017 and 2018 wiped out nearly 25 years’ worth of profits for insurance companies in that state.
To balance their risk, insurance companies often turn to reinsurance companies; in effect, insurance companies that insure insurance companies. But reinsurers have also been raising their prices to cover their costs. Property reinsurance alone increased by 35% in 2023. Insurers are passing those costs to their policyholders.
What this means for your homeowners policy
Not only are homeowners insurance premiums going up, coverage is shrinking. In some cases, insurers are reducing or dropping coverage for items such as metal trim, doors and roof repair, increasing deductibles for risks such as hail and fire damage, or refusing to pay full replacement costs for things such as older roofs.
Some insurances companies are simply withdrawing from markets altogether, canceling existing policies or refusing to write new ones when risks become too uncertain or regulators do not approve their rate increases to cover costs. In recent years, State Farm and Allstate pulled back from California’s homeowner market, and Farmers, Progressive and AAA pulled back from the Florida market, which is seeing some of the highest insurance rates in the country.
State-run “insurers of last resort,” which can provide coverage for people who can’t get coverage from private companies, are struggling too. Taxpayers in states such as California and Florida have been forced to bail out their state insurers. And the National Flood Insurance Program has raised its premiums, leading 10 states to sue to stop them.
About 7.4% of U.S. homeowners have given up on insurance altogether, leaving an estimated $1.6 trillion in property value at risk, including in high-risk states such as Florida.
No, insurance costs aren’t done rising
According to NOAA data, 2023 was the hottest year on record “by far.” And 2024 could be even hotter. This general warming trend and the rise in extreme weather is expected to continue until greenhouse gas concentrations in the atmosphere are abated.
In the face of such worrying analyses, U.S. homeowners insurance will continue to get more expensive and cover less. And yet, Jacques de Vaucleroy, chairman of the board of reinsurance giant Swiss Re, believes U.S. insurance is still priced too low to fully cover the risk from climate change.
*Andrew J. Hoffman, Professor of Management & Organizations, Environment & Sustainability, and Sustainable Enterprise, University of Michigan.
This article is republished from The Conversation under a Creative Commons license. Read the original article.
24 Comments
Yes, this is true. Insurance companies are going to gouge people that live near rivers, low lying areas, and by the sea. They are using the climate scam to hike premiums, it's a great money spinner. Insurance companies are also moving to assess premium house by house. Those with well built. modern houses it good, perceived low risk locations will pay a lot less. I recently moved to a company that does assess house by house and halved my premiums for the same cover.
"The climate scam"
Oh dear, someone has 'alternative facts'. It's this sort of arrogant and ignorant attitude that is going to make things a lot lot harder.
Rather than accept reality and start preparing there is a tiny vocal hardcore that are intent o pushing some sort of delusional conspiracy theory that all the scientists are part of.
At least they recently banged up one of those suckers who was living in a caravan ... Nutjobs.
It is a scam.
Western countries are being scammed for billions.
China alone emits more carbon than the entire western world combined and its emissions are increasing at an exponential rate.
They are still building 2 coal power plants every week.
India is the second largest emitter. Its emissions increasing at a near exponential rate.
So in others words there’s nothing we can do to stop anything but we have to pay taxes left right and centre and change our way of life.
the only countries outside the WEF following west are countries that get massive hands outs from us.
The rest are mainly laughing at us as they say what needs to be said at the climate conferences and then go and do the complete opposite.
yeah that's not the same as it being a scam. Saying you refuse to do anything or acknowledge climate change because Chinas/others aren't doing anything to help and are still doing harm is a lazy, convenient and unintelligent attitude. Good luck talking to your grandchildren cause they'll care and they'll want to know what YOU did to help fix the problem not what China did
Yes. It’s is a scam. NZ is a carbon sink as is Australia. We can’t get to net zero unless we increase our emissions. As the poster points out about we think we can change our behaviour and and pay a bunch of taxes and that will solve someone else’s problems and a problem we don’t even have. People get scared when it rains too hard or there is a forest fire, but the amount of them it pretty normal. Islands that were supposed to disappear, have not, and in fact their land area is increasing. So either someone really dumb is coming up with the story or it’s a scam. The fact that climate concern is something people care less and less about makes it pretty obvious that the whole narrative is dying.
Will uninsurable places simply become uninhabitable here?
No, it will just be the way it used to be or as is already the case with the thousands of 'as is where is' properties around the country. You live in them just fine like I drive my uninsured cars just fine - without insurance. There are increased risks if something bad happens, so you pay more attention to them.
On the plus side, there is no risk of being fleeced each year by an insurance company. Although, given the price of wool, that might not be a good analogy.
Because to the best of my knowledge a bank will not lend against an uninsured property. If you've managed to get a mortgage without insurance I'd be very interested to know how.
You come across as someone who self-insures, so I'm interested to hear more. Goodness knows I could do with paying less.
I’ve been married for well over 20 years now and my in-laws have never had insurance.
they had a mortgage at least half that time.
I’m trying to stretch my memory back to when my wife and I bought our 1st house back in 2005 and I don’t think we were required by the bank to have insurance.
I might be wrong but I think it came in after the 2009 Christchurch earthquake.
it’s is getting unaffordable.
I now pay more a month for insurance than everything else apart from mortgage and groceries.
for the first time I’m having to think about cutting the value of my assets in half to make the insurance more affordable. Even my car insurance is now getting insanely expensive.
im lower middle class for reference.
They won't be uninhabitable they will just drop in value massively.
Who would spend a million bucks cash (has to be cash as a bank will not lend without insurance) on a home that is likely to get damaged beyond repair and not be insurable. As this plays out some increasing numbers will leave those areas, the services will be cut back, the community will fragment and dissipate and all that will be left are those that can't move and those that continue to believe climate change is a scam. This is already playing out in many parts of the US. Florida, California ...
The weather is quite normal here, but insurance companies are still gouging their long-suffering customers.
All the recent flooding around Auckland is mostly because there's insufficient drainage and lots more houses.
Weather pattens like this have been coming and going for years, but with the advent of the internet, any significant rainfall is instant worldwide news.
Hence the global warming ramp.
We now live on a more violent planet than the one we left behind a few decades ago, the one we will look back on as peaceful, gentle, predictable. More violent, more unpredictable, more chaotic, more destructive, more dangerous. Some of that danger is heat itself, but water is proving to be a major part of climate crisis. The basic equation cited by climate scientists is that warmer air holds more water. “For every degree celsius that Earth’s atmospheric temperature rises, the amount of water vapor in the atmosphere can increase by about 7%, according to the laws of thermodynamics,” says Nasa.
Which means more warming will create more rainfall – but the climate crisis also shifts wind and ocean currents, making how and where that rainfall arrives unpredictable. The old terminology of “hundred-” and “thousand-year” events no longer makes sense, now that they are happening so often.
I've heard it all before from the 'experts'.
No oil left by 2,000, the ozone layer's gone, acid rain destroys all crops, the ice caps gone, and that hackneyed ol' chestnut, running out of water.
Tell that to the Dunedinites.
I used to live in the Pacific, there were violent storms every year, but that was before the internet, so that's not news to the 'global warmers'
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