Impact of Climate Change on Insurance Rates

How climate change impacts homeowners insurance costs - Rising insurance premiums and policy non-renewals are becoming the new reality for homeowners across the US, especially in areas most affected by climate-related risks (I also got dropped by my insurer in CT … ). The US Department of the Treasury’s Federal Insurance Office (FIO) released a report showing that #homeowners insurance is becoming more costly and harder to procure as the costs of climate-related natural #catastrophes pose growing challenges to insurers and their customers. https://lnkd.in/ey2EX5ne   *Premiums are increasing faster than inflation. Between 2018 and 2022, average homeowners insurance premiums rose 8.7% faster than the rate of inflation, with some regions experiencing significantly higher spikes. *High-risk areas face steep costs. Homeowners in ZIP Codes with the highest risk of climate-related damage paid an average of USD 2,321 annually—82% more than those in low-risk areas. *Decreasing availability of policies. Non-renewal rates were 80% higher in the highest-risk areas compared to the lowest-risk ones, with availability continuing to decline in these regions. *Higher costs for insurers. Claims in high-risk ZIP Codes were both more frequent and severe, with insurers paying out an average of USD 24K per claim, compared to USD 19K in low-risk areas.   Insurance premiums rose further in the last two years, exacerbated by the surge in economic inflation, especially for construction costs and repairs. Construction costs rose by ~ 40% from 2020 - 2023. The data underscores the growing #affordability pressures on homeowners as the effects of climate change, economic growth & development and construction cost inflation compound.

Weekly Monday Sustainability Post: Climate change will reduce real estate value in the near-term with a recent study putting it at $1.47 trillion lost in the next three decades. Some areas will suffer more than others. For example, some counties in California, Florida, and Texas will experience net declines of 10% to 40% in their property values by 2055. In addition to property values going up, insurance premiums are set to increase. There's an estimated 4X premiums increase in Miami, 3X in Jacksonville, Tampa, and NOLA, and 2X in Sacramento (see graphic with this post). Nationwide, insurance premiums will increase an average of 29.4% by 2055. This is comprised of a 18.4% correction for current underpricing and an 11% increase from growing climate risks. Some areas will benefit. Other properties across the country will see an increase in $244 billion. They'll also see more people coming in as 55 million people migrate away from extreme heat, wildfires, and flooding. This year alone is expected to see 5 million people move. Areas expected to see domestic climate migrants are northern, currently less-populated areas from Montana to Wisconsin and in parts of the East. With nearly two-thirds of U.S. adults being homeowners (including myself likely in the near-future), this is scary news. You can't just assume your property values will go up. The ramifications of climate change need to be considered when buying. People are starting to wake up. Zillow found that 73% of home buyers said at least one climate risk impacted where they shopped for a home. For more information, check out the First Street's 12th National Risk Assessment linked to in the comments. Note that the report hasn't been peer-reviewed, and there are important caveats and uncertainties associated with the work since it combines results from multiple models and peer-reviewed studies. The models don't account for climate adaptation measures and don't include inflation. These results are best used to identify locations that are most at risk for climate change-related increasing insurance costs, property devaluation, and population change. #realestate #climatechange #insurance

🔥 Monday Mornings With Michelle - CA wildfires, can something good come out of this tragedy? 🔥 In the wake of the utter devastation happening in Los Angeles, there is a lot of press being paid to the fact that some of the biggest names in homeowners insurance, like State Farm and Allstate, decided to stop writing policies in the state. With the magnitude of the devastation, if nothing changes, many of the remaining carriers may have no choice but to exit the market. This isn't just about corporate decisions—it’s a wake-up call for the state’s insurance market. Here are the three main reasons why insurers are leaving: 1️⃣ Rising Catastrophic Risks: Wildfires in California are more frequent, intense, and expensive than ever before. Insurers are paying billions in claims, outpacing the premiums they collect. 2️⃣ Regulatory Constraints: California's Proposition 103 makes it tough for insurers to adjust rates based on future risks. They're stuck using historical data that doesn't reflect the increasing challenges from climate change and rising costs. 3️⃣ Soaring Costs: Rebuilding after a disaster isn’t cheap. Construction costs, labor, and reinsurance rates are climbing, leaving insurers with losses higher than premiums. What can be done to fix this? Here are some solutions to stabilize the market and ensure homeowners can get the coverage they need: ✅ Wildfire Risk Mitigation: Invest in better land management and incentivize homeowners to adopt fire-resistant materials and maintain defensible spaces around their properties. ✅ Rate Regulation Reform: Modernize regulations to let insurers use forward-looking models and climate data to set rates that reflect today’s risks. ✅ State-Backed Reinsurance: Create a public-private partnership to spread catastrophic risks and stabilize the reinsurance market. ✅ Consumer Education: Help homeowners understand how to protect their homes and why premiums may increase due to rising risks. ✅ Fair Plan Improvements: Strengthen California’s insurer of last resort to ensure coverage remains available for high-risk areas. This situation is complex, but the stakes are high—for homeowners, businesses, and the state’s economy. We need bold, collaborative solutions to create a sustainable insurance market in California. What are your thoughts on this crisis? Let’s start a conversation about the changes we need to see. #Insurance #California #Wildfires #ClimateChange #Innovation

You might not think Trump’s ask for a billion dollar donation from oil executives in return for a promise to scrap Biden’s climate policies has anything to do with major insurers like Allstate and State Farm refusing to insure homes in states like California, Florida, and Louisiana. Unfortunately, they overlap in a dangerous nexus – extreme climate change risk driven by fossil fuel pollution is behind the insurers’ decisions. For over 40 years, I have worked to cut the air pollution that damages public health and accelerates climate change risk, but I hadn’t felt its personal cost. That changed when I recently learned that my California home insurance policy with the same insurer for more than three decades will not be renewed. And not only is replacing it virtually impossible, successfully finding alternative coverage will make my monthly bill two to three times higher. And I’m not alone. Tens of thousands of California homeowners are facing similar issues, but it’s not just a California problem. Extreme weather is driving unprecedented levels of property damage nationally, leading insurance companies to flee markets across the country. In states like Louisiana, Florida, and parts of the Midwest and Southwest, residents cannot obtain insurance, or the premiums have become so prohibitive that they are forced to go without. More than 35 million properties – a quarter of U.S. real estate – face skyrocketing insurance prices and plummeting coverage due to climate change risks. Insurance companies have made it clear to regulators that extreme weather, fueled by climate change, is driving these changes. Read my Oped in Forbes

𝗙𝗹𝗼𝗿𝗶𝗱𝗮’𝘀 𝗜𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲 𝗖𝗿𝗶𝘀𝗶𝘀: 𝗧𝗵𝗲 𝗖𝗼𝘀𝘁𝘀 𝗼𝗳 𝗜𝗴𝗻𝗼𝗿𝗶𝗻𝗴 𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗥𝗶𝘀𝗸𝘀 Florida has long been a magnet for growth—an 18% population increase since 2010. But this growth is running headlong into the risks posed by a changing climate. Hurricanes Helene and Milton made this clear. In Pinellas County alone, nearly 41,000 homes were damaged. For many homeowners, insurance is the lifeline that keeps their property viable. But now, larger insurers are starting to walk away from Florida. They see the long-term risk that’s been ignored for too long. What’s left behind is Florida’s insurer of last resort—Citizens. It’s now responsible for 69% of premiums collected by state-backed insurers. Yet, after Hurricane Debby, Citizens denied claims on 77% of policies. This economic vise—rising premiums and unreliable insurance—will soon become unsustainable for many. Prices in parts of Tampa Bay are already softening. Nearly 40% of home listings are being cut in price just to find a buyer. Florida’s story is bigger than any one storm. It’s a slow, painful collision between growth, risk, and a changing climate. The question is not if this will reshape Florida’s property market, but how long it will take before the reality of climate risk is fully priced in.

Markets speak louder than climate models. Even before the recent fires in LA State Farm, Allstate, and other insurers had stopped selling new home policies in California, citing the growing risks of wildfires. In the devastated Palisades area, 69% of homes lost their insurance before disaster struck. Some may have signed up for the state’s limited fire insurance program (FAIR) and some may have been without insurance. Now the FAIR plan faces $5.9B in potential Palisades claims. Insurance companies spread their risk by buying their own insurance (reinsurance). FAIR's $2.5 billion backup plan falls short of the $5.9 billion they might need to pay out. This funding gap means delayed payments and costlier coverage for homeowners. We see this playing out in Houston where Homeowners are paying $3,740 annually for insurance - nearly 3X the national average and 60% higher than the Texas state average. This is the new reality for climate-vulnerable cities. Our once-vibrant communities aren't just facing environmental risks—they're becoming financially untenable. When insurance becomes unaffordable, thriving neighborhoods transform into ghost towns—first by natural disaster, then by financial impossibility. Image credit: GZERO Ico Oliveira. Cost of climate disasters showing up in the cost of home insurance. #LAfires #Insurance #climatetech #climatechange #climateVC #venturecapital

Why did major insurance companies State Farm, Allstate, Farmers, Nationwide, USAA, AIG, and GEICO exit their presence in California over the last couple of years? Here’s why: 1. Massive Wildfire Losses & Climate Risks • California has faced devastating wildfires in recent years, leading to billions in insurance payouts. These frequent, severe disasters have made it difficult for insurers to remain profitable in the state. 2. Strict State Regulations on Rate Increases • Unlike most states, California requires insurance companies to get approval from the California Department of Insurance (CDI) before they can raise rates. • The CDI often denies or delays requested rate hikes, meaning insurers can’t quickly adjust prices to keep up with rising risks and costs. • California also does not allow insurers to set rates based on future risks (such as projected climate impacts), only past data—making it harder for insurers to cover anticipated losses. 3. High Construction & Rebuilding Costs • Inflation and supply chain issues have driven up construction costs, making it more expensive to rebuild homes after disasters. • The higher the rebuilding costs, the more insurers have to pay in claimswithout being able to adjust premiums quickly to cover these expenses. 4. Increased Reinsurance Costs • Insurance companies themselves buy insurance (called reinsurance) to protect against catastrophic losses. • Reinsurance costs have skyrocketed due to global disasters, making it more expensive for insurers to operate in high-risk areas like California. 5. Lawsuits & Fraud • California has a history of bad faith lawsuits and legal challenges against insurers, forcing companies to pay large settlements. • Some insurers cite excessive litigation and claims fraud as additional financial burdens. 6. Prop 103 & Regulatory Challenges • Proposition 103, gives the state strong control over how insurance rates are set. • The regulation prevents insurers from quickly adjusting prices based on risk, unlike in other states where market forces play a larger role. • As a result, some insurers have simply chosen to stop offering policies in California rather than continue operating under the tight restrictions. Which Companies Have Left or Cut Back? • State Farm (stopped issuing new home insurance policies) • Allstate (stopped writing new home policies) • Farmers Insurance (capped the number of new policies) • Nationwide, USAA, and AIG (reduced or pulled back coverage) • GEICO (closed all physical locations in California) The Impact on Consumers • Homeowners are struggling to find affordable coverage. • Many have been forced into California’s FAIR Plan, a last-resort insurance option with higher premiums and less coverage. • Car insurance rates are also rising due to similar cost concerns. • Renters and businesses are facing higher rates and fewer choices. That’s why. Pray for the Cali people.