A man’s hands cradling and protecting a small toy house. There is a stack of toppled dominoes on both sides of his hands, from which he protects the house. To illustrate climate change’s affect on home insurance.
Image credit: AndreyPopov on istock.com

In November 2022, it was Allstate. Seven months later, State Farm followed suit and publicly announced it would no longer accept personal or business applications for casualty or property insurance in California. The reason? California, the nation’s most populous state, is too much of an insurance risk due mainly to escalating wildfires. 

In Paradise, CA, the site of a deadly wildfire in 2018, the reaction to the exodus of insurance companies was yet more frustration. As resident Tom Adams, who was born in Paradise and is struggling to build a new home there, told local news station ABC 7 KRCR, “We’ve already been killed by the fire, and now we are being killed again by prices being just so sky high. We are priced out of being able to get affordable insurance.”

Insurers have underestimated climate change.

California isn’t alone. A new report from nonprofit climate research firm First Street Foundation reveals how homeowners in multiple states, from California to Florida, will see dramatic increases in their insurance premiums in the coming years due to the worsening impacts of climate change, including wildfires. The rises will be so steep that individuals in these states may find it difficult to insure a home.

Underestimating the Risks of a Changing Climate

The report, The 9th National Risk Assessment: The Insurances Issue, reveals that, across the United States, 4.4 million properties are at risk for escalating rates of insurance or nonrenewal of insurance due to wildfires, 23.9 million properties at are risk due to wind, and 12 million properties are at risk because of flooding. These properties are not included in the Federal Emergency Management Agency’s (FEMA) Special Flood Hazard Areas (SFHAs), which are parts of the country prone to flooding, erosion, or mudslide hazards where floodplain management procedures must be enforced, and flood insurance must be purchased by homeowners. The properties in the report are instead newly at risk. 

According to the report, “The unrealized climate-corrected valuation gap represents a growing climate bubble which is just starting to be recognized and quantified.” In other words, insurers have underestimated climate change. And as Grist writes, “the problem will only get worse.” 

The report has found that about 39 million properties—or a quarter of all homes in the United States—have been underpriced for climate risk. This means the insurance price for these homeowners could skyrocket in the coming years. 

“Actuarially sound pricing is going to make it unaffordable to live in certain places as climate impacts emerge,” said David Russell, a professor of insurance and finance at California State University Northridge, during an interview with Grist. 

Insurance companies are regulated by states, which can limit how much insurers can raise their rates. In the case of disaster-prone states like California, some insurance companies may feel it’s not profitable to insure homeowners there anymore and are pulling out of those markets. Grist cites one city in California, San Bernardino, where between 2015 and 2021, non-renewals of policies jumped 774 percent.

Insurance of Last Resort

“A property could effectively become worthless.”

For other homeowners in areas vulnerable to climate change, their insurers may not drop them but raise their prices to amounts untenable to most people. In 2020, Jen Goodlin the executive director of the Rebuild Paradise Foundation, moved back home to Paradise, CA, determined to help after the Camp Fire, which killed at least 85 people. She and her family moved into their newly built house in Paradise in the fall of 2022. Less than a year later, she received notice that her family’s homeowners insurance premium would be raised from $2,500 to $11,245. 

“Our insurance agent said, ‘Just be thankful we didn’t drop you,’ and I said, ‘You did, you just dropped me,’” she told the AP.

Though the town of Paradise is being rebuilt with updated firesafe buildings and few flammable bushes or trees near the new construction, these insurance rate hikes are impacting potentially thousands of homes. Goodlin, according to the AP, “knows a homeowner whose premium is now $21,000 for a newly constructed home.”

As reported by Grist, “insurance for the average California home could nearly quadruple if future risk is factored in, with those extra costs causing a roughly 39 percent drop in value.” Other states at risk include Hawaii, Florida, and Louisiana, where flood insurance at one Parish outside New Orleans could spike from $824 annually to $11,296, “and a property could effectively become worthless.”

For homeowners in such dire straits, there are other options for insurance, but these government programs have premiums that also run into the thousands of dollars. State-run “insurance of last resort programs” include California’s FAIR Plan, and Louisiana and Florida’s Citizens Property Insurance Corporation. 

According to the AP, California’s FAIR Plan insured 268,321 homeowners in 2021, nearly double the amount of five years before. In that time, Citizens Property Insurance Corporation also tripled the number of homeowners it insures in Florida, with 1.4 million current policies.

Some people, like Goodlin and Adams of Paradise, see the urgency of climate change as a reason to move back home, to stay and fight for a life there.

Helping People Prepare

First Street has published its report online to help people make informed decisions about where they want to live. Homeowners need to know if insurance rates will climb in areas vulnerable to climate change or if policies will be completely unavailable. 

But as NPQ reported in July, most people don’t want to move far if climate change disrupts their home. According to a Rice University study, the first of its kind, “58 percent of moving people stayed within a 10-mile drive of their previous home while 74 percent stayed within a 20-mile drive.” And some people, like Goodlin and Adams of Paradise, see the urgency of climate change as a reason to move back home, to stay and fight for a life there.

Having the tools to know one’s home is vulnerable to climate change can also help homeowners take precautions: clearing flammable brush or trees next to a house or replacing a roof as a safeguard in case of wildfires. To this end, First Street runs a free website, riskfactor.com. Individuals can type in any address nationwide and receive clear climate change risk information addressing flood, wildfire, wind, and heat vulnerability.

Knowledge is power, and despite escalating insurance costs, residents like Goodlin aren’t leaving home; they’re fighting to make home better—and safer—in the face of intensifying climate change. Goodlin recently spoke in support of new early warning sirens the town is testing to help warn and evacuate in case of another wildfire. “A lot of people think there won’t be a fire here again,” Goodlin said. “But it’s not for right now. It’s for the future for our kids.”