Homeowners Face Rising Insurance Risks
New government data paints a grim picture: homeowners in areas hit hardest by climate disasters are increasingly ditching their insurance. This leaves them exposed to potentially devastating financial losses.
This trend highlights how climate change is fundamentally changing American life, making home insurance more expensive and difficult to maintain. This is happening even as wildfires, hurricanes, and other natural disasters become more frequent and threaten what is, for many, their most valuable asset: their home.
Ethan Zindler, a climate counselor at the Treasury Department, stated, “Homeowners’ insurance is where many Americans are now feeling the financial effect of climate change directly, in their pocketbook.” He further noted that the impact isn’t limited by political affiliation or belief in climate change: “Nature doesn’t really care whether people are living in a blue state or a red state or another state, or whether you do or don’t believe in climate change.”
The Treasury Department’s analysis of 246 million insurance policies from 330 insurers across the U.S. between 2018 and 2022 provides the most comprehensive look yet at the effect of climate change on the home insurance market.
Homeowners with mortgages are usually required to have insurance by their lenders, but those who own their homes outright have the option of dropping their coverage.
The data reveals that both the cost and the number of insurance claims are rising sharply in the riskiest areas, as defined by FEMA. This financial pressure is also being felt by insurance companies, and it’s leading to higher insurance costs, especially in high-risk zones.
As these trends worsen, more people are losing their insurance. This occurs through two main avenues: cancellations, when homeowners can’t pay their premiums, and nonrenewals, where insurers refuse to renew existing policies.
Cancellation and nonrenewal rates are increasing, particularly in high-risk regions.
In 2022, more than 150 ZIP codes across the country saw insurers cancel at least 10% of home insurance policies due to unpaid premiums.
Coastal areas in the Carolinas, including Hilton Head, Charleston, and Myrtle Beach, experienced the highest cancellation rates, due to their vulnerability to hurricanes. Some parts of West Virginia, Arizona, and California also saw high rates.
While the data doesn’t explain the homeowners’ decisions to stop paying, Nellie Liang, the Treasury Department’s under secretary for domestic finance, sees it as a sign of families facing growing financial difficulties exacerbated by climate change.
Liang stated, “Households are not able to bear the burden by themselves.”
Nonrenewal rates were also higher, and grew faster, in high-risk locations. Coastal regions of South Carolina and parts of California (Sonoma and Yuba counties, which have faced wildfires) topped the nonrenewal list in 2022, along with areas of Tennessee that endured severe storms.
The destabilization of the home insurance market has broader consequences, according to Ms. Liang. It threatens property tax revenues, which depend on homeowners ability to rebuild and maintain home values, and harms local businesses reliant on these homeowners.
Ms. Liang expressed concern, saying “There’s a lot to worry about.”
Several articles in the New York Times by Christopher Flavelle and Mira Rojanasakul, highlight the crisis:
Gathering comprehensive data has been challenging, complicated by disputes about climate change, and who regulates insurance companies.
Some state insurance commissioners, supported by Republicans in Congress, pushed back on the Treasury Department’s data collection efforts. This resulted in seven states, including Florida, declining to participate. Those states’ insurance companies did not share their company data, although national insurers did provide data for homeowners they cover in those states. The National Association of Insurance Commissioners, which collected the data, only shared some with the Treasury Department.
The Treasury Department urged states and the association to continue gathering and releasing this data annually, even expanding it to cover high-risk pools.
Republican state insurance commissioners have expressed opposition to these efforts.
Methodology:
Seven state insurance departments (Alabama, Florida, Georgia, Indiana, Louisiana, Montana, and North Dakota) didn’t participate in the data collection.
Data from Texas insurers didn’t include nonpayment cancellations or nonrenewals.
Risk categories are based on FEMA’s National Risk Index.
Cancellation and nonrenewal figures represent averages within risk categories.
