Climate Change Is Upending The Home Insurance Market

FLORA LICHTMAN: This is Science Friday. I’m Flora Lichtman, and now it’s time to check in on the state of science.

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FLORA LICHTMAN: Local science stories of national significance. You cannot get a mortgage without home insurance, but in some parts of the country, it’s becoming harder and harder to find a plan. Insurance companies are dropping homeowners, even pulling out of entire states, as flooding, wildfires, and storms become more frequent and intense. In Florida, for example, one in five people don’t have home insurance right now. And in counties across the Mountain West, insurance cancelation rates have tripled since 2018.

My next guests have both reported on how climate change is impacting home insurance in their states, Rachel Cohen, Mountain West News Bureau reporter for KUNC in Greeley, Colorado, and Jessica Meszaros, climate change and environment reporter for WUSF in Tampa, Florida. Welcome to you both to Science Friday.

RACHEL COHEN: Thank you.

JESSICA MESZAROS: Thanks for having us.

FLORA LICHTMAN: Rachel, how is access to home insurance changing out West?

RACHEL COHEN: Yeah, what we’re seeing in the West is that a crisis that was really once thought to be largely limited to places like Florida or California is now really hitting states like Colorado, Nevada, Utah. And this has really developed in the past few years. One consumer report out this year found Utah was the state that had the biggest premium increases of any state in the country. Between 2021 and 2024, they went up 59%. And climate change is definitely a major driver in our region. It’s more destructive wildfires, but also hailstorms.

FLORA LICHTMAN: In your piece, you talked to homeowners. What did you hear from them?

RACHEL COHEN: Homeowners across the Mountain West are really feeling the squeeze. Our reporting featured Sandy and Dave Nabbefeld, the couple that lives in rural Idaho. And they have had their insurance dropped twice because of wildfire risk in the past five years. Both times, the company talked about reducing its wildfire exposure, and they have been able to find a third company to write their policy, but they’re worried about the same thing happening again.

And we heard from many more homeowners like this, and also ones who feel like increasingly, they’re doing everything they can to protect their homes from wildfires, like cutting down trees, or they’re removing their wood decks and clearing brush. But they’re still seeing their premiums increase.

FLORA LICHTMAN: Are they stressed? It sounds so stressful.

RACHEL COHEN: Yeah, they’re definitely stressed. They’re worried, even angry because they’ve been paying their bills for sometimes two decades on the same house, and then all of a sudden, they learn that they’re dropped.

FLORA LICHTMAN: Jessica, how’s the situation in Florida different?

JESSICA MESZAROS: I don’t that it’s different, except that maybe we’ve been dealing with this for a while. Since 1992, we started to see this cycle with Hurricane Andrew coming through. That’s when a lot of big national insurers started backing out, leaving the state in a panic of how are people going to get mortgages. They need to have insurance.

And so what we about climate change is obviously, the Earth is warming, and that’s warming the waters. And warm waters fuel hurricanes. It makes them stronger. It makes them wetter.

So the state is becoming much more risky over time. And this has led to many homeowners I talked to being priced out, so crazy high prices. Or they’re being dropped altogether if they’re found to be a risk. If the insurance company doesn’t like how long it’s been since they’ve changed their roof, they say, hey, we’re not going to renew your policy.

FLORA LICHTMAN: What do people do if they can’t get insurance? Let’s start in Colorado.

RACHEL COHEN: It depends. And none of the options are great. If you have a mortgage, you’re required to have insurance. And if you own your home outright, maybe some people are choosing to go without insurance altogether. But that’s really risky.

In Colorado, in anticipation that more people would be in this situation, the state actually did set up a new last resort program. These are called FAIR Plans. Colorado was the first state to start a brand new one in the last 40 years. And it’s up and running as of this spring.

So how many people sign up for that in the first six months or so, it could provide us a window into how many people really can’t find insurance, because in order to qualify for this, you have to be rejected by three private companies. The problem is that these policies are more expensive, and they don’t cover as much.

But policymakers are definitely feeling the pressure in our region. In the Mountain West, we counted over a dozen bills this year in state legislatures that try to address these issues. And so there’s a sense of a tipping point that we’re at now or an impending crisis if this continues.

FLORA LICHTMAN: Wow. Have either have you heard from people who are considering leaving the state because they can’t find insurance?

JESSICA MESZAROS: One person in particular comes to mind, an optometrist that I talked to in St. Petersburg, Florida. And he was being charged $15,000 for his insurance. And obviously, it went up a whole lot since when he had first started.

And he was a semi-retired optometrist when I spoke to him, and he was trying to go full retirement, but he couldn’t because of how high the insurance was. So he and his wife had been discussing, if the rates keep going up, if the premiums keep going up, that they were planning to move.

And I think there’s a lot of people in that boat, and maybe just a lot of people who won’t buy homes. I mean, I know a lot of people– I’m in my 30s, and there are a lot of people my age who, that’s just not an option for them.

FLORA LICHTMAN: That’s about all the time we have for now. I’d like to thank both of you for coming on to talk to us.

RACHEL COHEN: Thank you.

JESSICA MESZAROS: Thank you for having me.

FLORA LICHTMAN: Rachel Cohen, Mountain West News Bureau reporter for KUNC in Greeley, Colorado, and Jessica Meszaros, climate change and environment reporter for WUSF in Tampa, Florida.

Insurers aren’t just dropping or canceling plans in Florida or Colorado. This is happening nationwide. So what does it mean for the housing market, and what does it mean for homeowners? My next guest has studied this in depth. Benjamin Keys studies the impact of climate change on the real estate market at Penn’s Wharton School. He’s based in Philadelphia. Ben, welcome to Science Friday.

BENJAMIN KEYS: Yeah, thanks so much for having me.

FLORA LICHTMAN: Let’s talk about this big paper you put out last year that breaks down how climate is impacting home insurance across the country. What did you find?

BENJAMIN KEYS: Yeah, well, we realized there was a dearth of data available on homeowners insurance premiums. And so we started digging in mortgage data, and using mortgage escrow payments actually backed out a quite large database of how much households pay to their homeowners insurance policies each year.

What we found was a very sharp increase in the cost of insurance. Insurance premiums are up about 20% in real terms since the beginning of the COVID pandemic. And that’s real dollars for most households sitting around the kitchen table trying to figure out how they’re going to pay the bills this month.

FLORA LICHTMAN: Twenty percent is huge, and it’s just been over a couple of years.

BENJAMIN KEYS: Yeah, it’s happened over quite a short time period, a time period that’s seen a large uptick in inflation, that’s seen rising costs of materials and labor, that’s seen increases in house prices and also seen changes in the cost of capital for insurers and reinsurers when they’re thinking about what policies to write and what markets they might want to exit.

FLORA LICHTMAN: Yeah, I want to talk a little bit about that. Was the impact the same across the country? Were there climate havens? Were there places that were especially impacted?

BENJAMIN KEYS: One of the things that jumped out to us was how different premium increases were in different parts of the country. It seems like premiums have gone up everywhere to some extent, but they’ve gone up much more sharply in the areas that are affected by disaster risk. And so if you look at the top quintile of ZIP codes in the country, measured by their expected annual losses through disaster risk, their premiums are up over $1,100 in just the last four years. And so that’s a sizable increase out of pocket, especially for homeowners that might have previously paid off their mortgage or are on a fixed income and were expecting their payments to stay fairly fixed over time.

FLORA LICHTMAN: And where specifically did you find the prices were going up the most?

BENJAMIN KEYS: We saw large increases in the Gulf, Florida, Louisiana, along the Eastern seaboard. But we also saw large increases in parts of the Midwest that are exposed to hail and severe convective storms. And so places like Nebraska and Oklahoma have seen large increases. And a state like Colorado, which previously was sort of middle of the pack when it comes to the cost of insurance, has now seen their insurance premiums put them in the top five most expensive markets in the country.

So rising insurance premiums are not just a Florida or a Colorado problem. We’re seeing widespread increases in so many different markets around the country. And that’s having impacts on the decisions that households have to make about how much insurance to take on, whether to drop their insurance policy at all, and then whether it makes sense to move elsewhere or look to move to a market that’s out of harm’s way.

FLORA LICHTMAN: What is this doing to the housing market?

BENJAMIN KEYS: Well, this is presenting a big challenge for current homeowners looking to sell their homes in some of these markets. And a new buyer is going to see the cost of insurance going up much faster than inflation and say, I don’t want to pay that much for this house. If those costs are rising, this is what economists would call the capitalization of costs into asset values.

And so what we’re seeing is a relative decline in house prices in those areas most affected by rising insurance premiums. And that’s been borne out in the housing market data from this year. If you look at where housing markets are weakest, it really closely tracks the places that are experiencing highest insurance increases. And so that’s areas like Cape Coral, Florida, it’s areas in Louisiana along the coast, and a number of other markets where we’re seeing house prices softening quite a bit from their pandemic peaks. And part of that story has to be related to rising insurance premiums and associated expectations that those may continue to rise.

FLORA LICHTMAN: If you can’t find insurance, if insurers are pulling out of a state entirely or an area entirely and you can’t find insurance, if you need a mortgage, you can’t buy the house at all, which also means you can’t sell that house.

BENJAMIN KEYS: Absolutely. Insurance is an essential element to the well-functioning housing market. You can’t get a mortgage without an insurance policy, and most home buyers can’t afford a house without a mortgage. And so that chain depends very heavily on finding access to insurance that covers the value of the mortgage at the very least.

What we’ve seen is states step into the void when private insurers say they’re not willing to write policies in a given area. So a state like Florida relies very heavily today on the state insurer of last resort, the so-called FAIR Plan. So Citizens Property Insurance in Florida is actually the largest insurer in the state. And so if we think about, well, when are these markets going to break, I would argue that the private market broke a long time ago in some of these states, and instead, we have a stopgap solution with the state taking on an enormous amount of risk for programs that were never intended to take on this scale, all in the hopes of keeping the housing market functioning smoothly.

FLORA LICHTMAN: Well, and if the state is stepping in, doesn’t that actually just mean the taxpayers are paying for this?

BENJAMIN KEYS: Exactly. It means that the taxpayers are ultimately the ones on the hook. And different states have used different models for exactly the structure of these FAIR Plans. But at the end of the day, it’s the taxpayers across the state that are ultimately subsidizing insurance to their riskiest neighbors. And you can understand where you might get pressures to kick the can down the road and have someone else bear those costs. And that’s partly why the Senate Budget Committee was interested in this topic in the first place, because they were wondering, well, is this going to fall on the national budget in some way if a state’s FAIR Plan looks for a bailout?

FLORA LICHTMAN: I’m curious about the insurance company’s relationship to climate change. Or maybe a better way to put it is, I’m curious about how much insurance companies know about climate change. Are they the best-informed people on the planet about climate change prediction and how it’s going to impact people?

BENJAMIN KEYS: No question. They know the most about the changing disaster risk because that is their bottom line. This is all they do. They are spending an enormous amount of money on data and models in order to try to get the best and most accurate predictions of where disasters are going to hit and how much it’s going to cost them. And so they are very clear-eyed about the changing risks over time, and their aim is to have insurance premiums reflect that risk.

FLORA LICHTMAN: Do you feel like we need laws to require insurers to cover people, even in disaster-prone areas?

BENJAMIN KEYS: I think there are a number of challenges in imposing a mandate for offering policies. I could see a few different policy solutions that might have some appeal. One is a larger public role in these markets in the way in which we’ve seen the FAIR Plans step in.

Another is a backstop at a higher level of the market, so backstopping the insurance companies themselves, rather than writing individual policies directly to the household. And that’s something that we’ve seen some proposals around. I think ultimately, a well-functioning housing market requires insurance. And so the need for keeping insurance in place is going to create a strong enough political pushback that we’ll see some larger public role going forward.

FLORA LICHTMAN: I’m Flora Lichtman, and this is Science Friday from WNYC studios talking to Benjamin Keys about the future of home insurance as the climate changes.

We live in a country where a quarter of the people don’t believe in climate change. Obviously, insurance companies do. Do you think that this issue, the rising cost of home insurance, might require people to engage with climate change in a way that they haven’t before?

BENJAMIN KEYS: Absolutely. I think that the changing insurance premiums is the thing that’s really hitting households’ pocketbooks in a very direct way. And I think it’s that direct hit to the pocketbook that is going to force a lot of people to reevaluate their views on what’s changing, why it’s changing, and Why are my costs changing? And so I think that insurance holds a great deal of opportunity for shifting perceptions around disaster risk and hopefully motivating deeper discussions about how to reduce that risk.

FLORA LICHTMAN: What’s your advice to homeowners, especially homeowners living in these disaster-prone areas?

BENJAMIN KEYS: The first piece of advice would be to understand your risk and be clear-eyed about what the challenges are that you’re facing. Go and find high-quality data on a variety of environmental risks that may affect your property, and then get a sense of, what are some of the costs of bringing those risks down at the household level and at the community level. Some of those challenges are more straightforward for things like a small risk of flood, where you can elevate some of the systems in your home. Others, like wildfires, require a community-level response.

And so I think part of this is information and awareness. And then the next step is collective action. And that requires making good decisions as a household and making good local decisions and electing local leaders who are focused on this problem, and then ultimately, at the national level, electing public officials who take these issues seriously, who understand the increased risk and the broader economic consequences and are taking meaningful steps to reduce our risks.

FLORA LICHTMAN: Thank you, Benjamin. That’s about all the time we have for now. Appreciate you coming on.

BENJAMIN KEYS: Thanks so much.

FLORA LICHTMAN: Benjamin Keys studies the impact of climate change on the real estate market at Penn’s Wharton School, and he’s based in Philadelphia.

Before we wrap, we want to hear from you. Has your home insurance coverage changed because of where you live? Are you having difficulties? What did you do? How has it impacted you?

We want to hear your story. Give us a call at 877-4-SCIFRI. We have to take a break, and when we come back, the science behind death by poison, Agatha Christie style. Stay with us.

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This is Science Friday from WNYC studios.

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