The Rising Cost of Disaster: Climate Change and the Insurance Crisis
As the effects of climate change become increasingly visible, the economic consequences are rapidly escalating, particularly in the insurance sector. The surge in extreme weather events—from devastating wildfires to relentless storms and floods—is driving up insurance costs across the United States, leaving many homeowners and businesses struggling to find and afford coverage.
While Southern California continues to recover from recent catastrophic wildfires, the economic damage has reached an estimated $250 billion, far exceeding initial projections. This figure does not account for the personal losses of residents whose homes and businesses were destroyed.
Data analytics from CoreLogic indicates that the Palisades and Eaton fires could result in as much as $45 billion in insurance payouts. However, this estimate only accounts for those residents who were insured in the first place. Following extreme weather events, residents typically rely on insurance claims to repair damaged property, but the increasing frequency and intensity of disasters are complicating the situation.
In 2023, the National Oceanic and Atmospheric Administration (NOAA) documented 28 separate billion-dollar climate and weather disasters across the U.S., a record number. NOAA reported that by September 2023, the U.S. had already accumulated $57.6 billion in damages for that year. The trend continues, with numerous billion-dollar disasters in 2024.
Insurance Companies Respond, Consumers Pay
Insurance companies are responding to the rising costs by increasing rates, ultimately leading to higher insurance fees for consumers. Property insurance rates have increased every quarter since the end of 2017, according to the Bipartisan Policy Center. Car insurance is also affected. Blizzards, tornadoes, and hailstorms led to a 52 percent increase in auto insurance premiums in Colorado from 2013 to 2023, and hurricanes caused an 88 percent jump in Florida during the same period, according to the Washington Post.
Many insurers have begun to leave states altogether to protect their profit margins, particularly in coastal areas vulnerable to hurricanes and other disasters. Allstate and State Farm halted new policy sales in California for property and casualty coverage in 2023 due to wildfire costs. Additionally, insurers have abandoned Louisiana and Florida residents as hurricane risk intensifies. As of February 2025, annual home insurance rates average $2,258, slightly down from the previous year, but costs vary widely based on a home’s size, age, and location. Nebraska, Florida, and Oklahoma have the highest rates in the nation.
A Cycle of Destruction: More Disasters, More Costs
Droughts, storms, and floods were nearly unrelenting throughout 2023. Hurricane Idalia brought significant damage to Florida, Georgia, and the Carolinas, causing damages of $3.5 billion. 2024 has presented its own series of challenges, starting with tornadoes and high winds along the East Coast that resulted in $1.8 billion in damages. The year concluded with catastrophic hurricanes, Helene and Milton, that caused an estimated $300 billion in damages and took 250 lives in Florida and other southeastern states.
Increased frequency of severe weather disasters means the availability of affordable insurance is becoming more limited, especially in high-risk states. Some major insurers in Florida and California have stopped offering services altogether. Florida implemented the Hurricane Catastrophe Fund and Citizens Property Insurance Corporation to subsidize home insurance, while California regulates insurer rates based on the past 20 years. Both methods have limitations: Florida’s subsidy funds are being depleted, and many insurers are reluctant to operate in California.
Beyond Insurance: Addressing the Root Causes
Insurance alone is only treating the symptom of a larger issue. States need to examine how they prepare for and recover from natural disasters. As storms become more intense, and insurance options dwindle, states must act. A possible solution could be increased transparency and more collaborative negotiations between insurers and clients. In Oregon, new legislation is attempting to encourage insurers to work with citizens to identify and increase coverage for mitigation measures to help build resilience.
This article was originally published by CheapInsurance.com and was produced and distributed in partnership with Stacker Studio.
