Insurance companies drop 2M homeowners policies due to climate change

Insurance companies increasingly dropping homeowners policies due to climate change

What you probably already know: Americans are losing their home insurance at astonishing rates. Insurance companies have dropped 1.9 million home insurance contracts since 2018 and in more than 200 counties, the nonrenewal rate has tripled according to a new Congressional investigation released this week. The report, titled “Next to fall: The climate-driven insurance crisis is here — and getting worse,” looked at data from 23 companies representing 65% of the homeowners insurance market in the U.S. and found that it wasn’t just homeowners in Florida, Louisiana, Texas and California who were losing coverage. Southern New England, the Carolinas, New Mexico, Hawaii and others are experiencing this as well.

Why? Climate change and the extreme weather that it brings with it is putting more and more homes at risk of severe damage, and that’s destabilized the insurance market. The report suggests that economic shocks from climate change could be worse than the 2008 financial crisis and the Covid pandemic. Insured losses from natural disasters often hit $100 billion per year, up from $4.6 billion in 2000. That’s also driving up rates for those who are able to keep their insurance. Rates have gone up 40% faster than inflation. The report found that 67% of U.S. homes are now underinsured as a result.

What it means: The increase in rates — and in the risk of loss for homeowners — has driven up the cost of living. The report suggests that climate change and the fight against it could wipe out 9% of the world’s housing value by 2050 — about $25 trillion. Given that home ownership remains one of the best ways for Americans to get ahead financially, this grim reality could hold millions of people back and drive the country into financial crisis. Without insurance, you can’t get a mortgage and without a mortgage, many people won’t be able to afford homes.

What happens now? The Senate Budget Committee has demanded insurance companies share data on the number of nonrenewals by county and year, and the New York Times has built out an interactive map where you can check your area to see how it’s trending. Insurance companies only need to give homeowners 30 days notice before canceling a policy, and once they do, it can be difficult to find a different insurer to write a new policy. That has people turning to FAIR plans — state-run programs that offer very basic coverage that typically costs far more than a standard policy. That’s putting these FAIR plans at risk that one catastrophic event could exceed their reserves and result in fractional payouts for policy holders.