The climate crisis is pushing insurance costs through the roof

I was talking with a co-worker the other day about the possibility of whether I’ll ever be able to afford to buy a home. He bought his house several years ago so I was hoping to gain some wisdom. The conversation went down several paths: 

1. I work & live in New York City where housing is notoriously expensive; 
2. Interest rates in the US right now are very high. This means it will cost me more than someone five-years ago to borrow money to buy my home; and 
3. Homeowners insurance is becoming stupidly expensive. 

That last one was a new one for me!. If you’re a millennial (as I am), you’re probably at that stage in life where you’ve considered what it would take to buy a house – no matter where you are in the world. But until my co-worker brought it up, the monthly cost of home insurance never really occurred to me as a large expense to consider. 

Now, you might be wondering why curious.earth is writing about potential homeowner anxiety? That’s fair. But read on to find out why the climate crisis is fueling a housing insurance crunch! 

The big picture

The climate crisis is making natural disasters like hurricanes, tornadoes, wildfires, and even heavy rain more frequent across the United States (and the world). This means more homeowners are filing claims with their insurance companies and the industry at large is suffering from severe losses. 

While the majority of the impact is being felt in the American west, mid-east, and south, even the Northeast where New York is located is seeing a steady decline in profits from home insurance. My co-worker lives in Connecticut (a small state just next to New York), where profits have declined by almost half in the last ten years. Reflecting this, he saw his home insurance premium increase more than 10% from last year. That is a big cost jump for most families. 

The wild(fire) west 

While I was shocked by the price increase shared by my co-worker, it turns out he was far from alone in experiencing insurance sticker shock. Other homeowners in the US are suffering much higher insurance cost increases or are being denied coverage all together as companies remove services from high-risk states. 

The state of California has seen mega insurance providers like State Farm and AllState pull out of the market – mainly due to the increasing risk from wildfires. A woman in Colorado reported a more than 300% increase in her home insurance premium – again due to the increased frequency of wildfires throughout the western United States. 

The implications  

This all has a potentially huge knock-on effect. If fewer people are buying homes, then the value of homes could decline. This would decrease government revenues from property taxes and leave communities with less money to fund services like the fire department, the police, and schools (or, addressing the local impacts of the climate crisis). 

Insurance plays a big part in owning a home. In order to get approved for a mortgage loan from a bank you have to have home insurance. If you can’t get approved for a mortgage loan, the majority of people don’t have piles of cash just lying around to buy a home.  

On top of that, if people can’t afford insurance and disasters keep increasing (which they will) – how do you afford to rebuild if a hurricane damages your roof? Or a wildfire burns your house down? In 2023, in America alone, almost 2.5 million people had to leave their homes because of natural disasters. Globally, almost 26 million people were displaced due to natural disasters.

Is there a solution? 

The most obvious solution would be to address the root cause of the issue (that’s the climate crisis, in case we haven’t made that clear yet!). While governments are wrangling out this larger solution, homeowners who can’t get insurance are turning to state-mandated insurance pools formerly used as a last resort. In Florida, so many homeowners rely on this solution that the state-backed insurer is the largest home insurance provider in the state. This is a bit of an issue since one large hurricane would bankrupt the fund. 

Understandably, this is starting to worry the US Congress… The Senate Budget Committee is making insurers tell them which regions they expect to be insurable next so they can shore up government responses in those areas. 

We know one thing for certain, with the climate crisis continuing to increase the frequency and severity of natural disasters, home insurance is certainly going to be a hot topic. 

Be curious! 

• Check out this interactive article by the New York Times for more on this topic and to find out what the impacts are in your state.
• Explore data on natural disasters in your neck of the woods. 
• Looking to buy a house and need insurance? Have a look at the options where you might be located. And remember – shop around before you commit.
  • The United States
  • United Kingdom
  • European Union

Feature image by Brent Assis via Unsplash.