Insurance Industry in Crisis: Climate Change Threatens Homeownership Across the US
The United States insurance industry is facing a crisis, making it increasingly difficult for homeowners and businesses to secure and afford coverage in certain regions. This isn’t a distant concern; it’s a present-day reality, fueled by the intensifying effects of climate change. From 2017 onward, the escalation of extreme weather events—unprecedented wildfires, devastating hurricanes, severe inland flooding, and derechos—has disrupted traditional risk models, prompting insurers to reassess their operations.
As a result, many areas are experiencing unaffordable, unreliable, or unavailable home and commercial insurance options. The fundamental principle of insurance—companies collecting premiums, assessing risk, and paying claims—is being challenged by the climate crisis, where the frequency and severity of catastrophic losses are making accurate risk pricing impossible. Events once considered “once-in-a-century” now occur every few years, rendering it unsustainable for insurers to maintain profitable operations.
Florida serves as a prime example. Repeated exposure to stronger, wetter, and more frequent hurricanes has caused numerous insurers to withdraw from the state. Homeowners have faced policy cancellations or dramatic premium increases, sometimes surpassing mortgage payments. This has led to a surge in the state-backed insurer of last resort, Citizens Property Insurance, which now covers 1.4 million policies as private carriers retreat. The situation is so precarious that even Citizens is seeking strategies to reduce its policyholder count by transferring them back to the private market, which is reluctant to accept them.
California is also grappling with severe challenges. Destructive wildfires, often sparked by malfunctioning utility infrastructure, have made large portions of the state undesirable for insurance coverage. Following record-breaking wildfire payouts in 2017 and 2018, major insurers like State Farm and Allstate stopped offering new policies in high-risk zones. Consequently, California’s insurer of last resort, the FAIR Plan, is managing a significantly increased workload. With fewer insurance options available, home sales in fire-prone areas have stagnated, and property values have declined by 20-40%.
Louisiana, South Carolina, Texas, and parts of New England are also confronting escalating insurance turmoil. Reinsurance expenses, which insurers purchase to protect themselves, have soared by almost 40% across the US, forcing companies to transfer costs to homeowners. Those unable to pay may face policy cancellations, leaving them vulnerable to the intensifying climate conditions. The state-backed insurers of last resort have become the only option for those unable to secure private coverage; however, these programs are themselves at risk of financial distress.
These insurers were designed to offer temporary coverage, not serve as primary providers. As private insurers retreat, these government-backed plans have become essential for many homeowners, carrying liabilities far beyond their original capacity. Florida’s Citizens, for instance, could face insolvency if another major storm like Hurricane Ian strikes. The situation is mirrored in Louisiana, where the equivalent program had to borrow $600 million to continue operating after consecutive hurricanes. The potential worst-case scenario is a catastrophic event that overwhelms these insurers, placing the financial burden on taxpayers.
Should state governments lack resources to support their reserves, homeowners across the country could be subject to emergency insurance levies, regardless of their location’s disaster risk. FEMA (Federal Emergency Management Agency) is the federal entity that steps in when other measures fail. FEMA has two main responsibilities: managing disaster relief and administering the National Flood Insurance Program (NFIP), which protects millions of at-risk properties. Both are currently strained financially. The NFIP has a debt of $20 billion. Though reforms have aimed to raise premiums in high-risk zones, they have done little to address the rising flood risk and the increasing cost of claims.
Another concern arises from political shifts. The Trump administration has expressed its intention to cut FEMA’s funding and transfer disaster response responsibilities to the states. The “Project 2025” agenda proposes to phase out the NFIP, leaving flood-prone homeowners to seek coverage in the private market, which might not accept them. If FEMA were defunded or the NFIP dismantled, millions of homeowners would lack viable insurance options, and the subsequent major disaster could trigger an economic collapse that extends far beyond the affected areas.
What are the consequences for housing markets as insurance options diminish? Evidence is already emerging. In many areas with high risk, rising insurance costs are negatively impacting home values. Potential buyers are retracting offers upon discovering the costly state-backed insurance options. Certain counties in Florida and California have seen home value drops of up to 40% in severe cases. Mortgage lenders are increasingly alarmed; without insurance, banks will not issue loans, effectively turning properties into stranded assets. Cash buyers, usually investors, are purchasing properties at discounted prices, accelerating the gentrification of at-risk regions. The result is a growing divide between those who can afford to self-insure or cover substantial premiums and those forced to relinquish homeownership.
While the insurance challenges affect both red and blue states, the political responses vary. Conservative-leaning states such as Florida and Texas have pursued deregulation and incentives to attract insurers, with mixed outcomes. Democratic-leaning areas like California and New York have adopted a more interventionist approach, trying to compel insurers to stay in the market through stricter regulations. The situation becomes more complex at the county level; red counties in hurricane- or tornado-prone regions are experiencing the greatest impacts from rising premiums and insurer withdrawals, similar to the turmoil in blue counties affected by wildfires. The common truth is that no political stance can shield homeowners from the stark reality of a broken insurance market in a rapidly evolving climate.
The insurance crisis is an early warning sign for climate adaptation. If insurers no longer view certain places as livable, why would anyone else? The coming years will likely bring climate-driven migration, with homeowners abandoning uninsurable properties for safer locations. Cities and states implementing proactive measures—strengthening infrastructure, enforcing strict building codes, and investing in resilience—will likely attract investment and preserve property values. For the rest, the retreat has already begun, and unfortunately, it’s likely to be unplanned. Without thoughtful strategies for managed retreat, the future could resemble ghost towns, abandoned neighborhoods, and areas of severe urban decline.
