The Home Insurance Crisis
- Ed Sullivan
- Sep 24
- 6 min read
Market Update
American homeowners are facing unprecedented increases in home insurance premiums. From coastal communities vulnerable to hurricanes to wildfire-prone areas in the West, the cost of insuring a home is skyrocketing. This reflects an increase in the frequency and severity of natural disasters as well as rising construction costs. Combined, these add to disaster settlement costs which is eventually passed onto the homeowner. This is ultimately reflected in higher monthly insurance premiums.
Bureau of Labor Statistics (BLS) data for “property, casualty and insurance premiums” reflects rapid and sustained growth in premiums since late 2023. Climate change is a principal cause of the premium increases. But it’s not just the severity and frequency of disasters that are running up premiums. The costs of building materials, labor, and home repairs have all increased as well[1]. This means insurance companies must pay more to settle more claims. As a result, insurers are passing these expenses on to policyholders through higher rates.
Scientists are suggesting hurricanes, high winds, wildfire, and flooding will become even more intense and frequent in the years ahead. Given the prevailing shortage of construction workers that will be exacerbated by strict immigration policies and tariffs – repair costs will likely keep climbing. Together, these pressures point to the beginning of a longer-term trend in rising home insurance costs.
The Home Insurance Premium Run-Up
While all U.S. regions will be affected by climate change, the impact will differ among states. Since 2020, some states have endured sharp premium increases , while six states have experienced outright declines in the average annual premium. Typically, states with more frequent and costly claims tend to face the largest increases.
The Flight of Insurers and the Rise of the Underinsured
While the frequency and severity of natural disasters are increasing, they are increasing at an unpredictable rate. This implies that insurance underwriters may underestimate the true risks of insuring. These potential underwriting errors could spell financial disaster for insurers. Lacking the ability to adequately assess the risks in a specific market can lead some private insurers to lose money – a lot of money.
Since 1970, the total monetary damage (inflation adjusted) caused by hurricanes, for example, has surged from $18 billion per decade to an estimated rate of more than $600 billion per decade. Each type of disaster causes damage, drives insurance losses, and ultimately pushes premiums higher - or, in some cases, makes insurers hesitant to underwrite new policies. As insurers’ risks become elevated, some insurers have begun to leave specific regional markets. Indeed, the flight of insurers has already begun. Consider the following:
Florida: Over a dozen insurers either go insolvent or exit the market entirely due to hurricane losses and a high volume of litigation.
California: Major insurers like State Farm and Allstate have stopped writing new policies, citing wildfire risks and regulatory constraints on rate increases.
Louisiana: After multiple hurricanes, at least 11 insurers became insolvent, and others left the state.
South Carolina: More than a dozen insurers became insolvent or exited between 2021 and 2023.
Colorado: Wildfire damage and rising construction costs have led to insurer pullback.
Texas: Severe storms and flooding have prompted some insurers to reduce their exposure.
Unfortunately, natural disasters are expected to strike with even more fury than in past years. As they become more frequent, the likelihood of huge financial insurance losses will grow – raising the risk that even more insurers will withdraw from these and other states.
After private insurers have left, stopgap measures are often implemented - such as the formation of state government-financed public insurance for homeowners. Often the financial duress is so enormous that they can jeopardize a state’s fiscal health. To pay for these costs in excess of insurance collections, tax increases, cutbacks in state spending programs, or an acceptance of more debt are the likely outcomes. None of these are good.
Given the risks, even the state’s public insurers will raise premiums and become more discriminating in writing new policies. Mortgage lenders require borrowers to purchase homeowner’s insurance policies that cover a range of losses, including those from natural disasters. The ability of new home buyers to secure insurance may represent a significant hurdle in the years ahead. While this may not prevent growth in home sales and new home building – it will likely reduce its rate of growth.
In response to elevated rates, some homeowners who own their house outright may roll the dice and forego insurance altogether – avoiding any bank loan requirements. If disaster hits, they absorb the losses or share them with a government organization either at the state level, or national level (FEMA). More often than not, the retired who moved to warm weather regions and live on fixed incomes will have to cross their fingers that the next hurricane will pass by them.
Unfortunately, natural disasters will eventually materialize. In 2023, insurers covered $80 billion of the $114 billion of losses attributable to natural disasters. This means that $34 billion were not insured. Those with insufficient coverage may not be able to rebuild or replace their homes, deepening financial hardship and disrupting communities.
Given Time, This Will Prompt a Redistribution of U.S. Population
Arguably, U.S. population migration has been moving from safer regions toward increasingly risky areas over the past several decades. For years, United States demographics have shown a movement from the north and eastern states to the south and western ones. These shifts were not just the appeal of sunny warm weather.
They also reflected a heavily unionized northeast and a less friendly labor union environment in the south. Business investment in the more favorable environment attracted those in pursuit of job opportunities while retirees were often attracted to the warm weather - regions usually characterized by high weather risks.
As insurance becomes harder to obtain or afford, homeowners may reconsider where they live. While no region in the country is immune from climate change, the risks of damage to homes are not equal. For example, insurance costs in the New England region are lower. Desirability to reside in these states could also improve given the lower disaster risks there. Over time, the population shift south and west that we have observed over the last decades – could reverse. A general movement north and east could materialize.
These trends will take decades to fully culminate. Once they do, they could result in a significant re-distribution of population. Cement plants are often located 250-300 miles to their principal market. If this holds true in the future, it may require these multi-nationals to reassess their long-term strategic investments.
All This Represents an Opportunity for the Concrete Industry.
Wind, wildfires, and flooding represent the key culprits in climate change-induced disaster settlement costs. Building materials matter. Concrete homes/buildings best withstand hurricane winds and are fire resistant. Most architects and building engineers agree with the structural benefits of concrete structures.
Currently, we have continued to build cheap - the way we did decades ago without recognizing the new threats posed by climate change. The local code boards allow this to materialize.
Often, the outcry for stronger building standards surfaces immediately after a disaster subsides - and the old building standards go unchanged. Codes and standards modifications are very complex and slow processes to implement - often characterized by powerful, well-funded building materials companies each protecting their own interests.
Heightened building codes aimed at reducing the potential insurance settlement costs are needed. Bold measures undertaken by the concrete industry in the codes arena must be doubled down to make homes more resilient and safer from disasters. To better ensure the success of these efforts, testing of the “new” green concrete’s performance under hurricane, tornado, or wildfire conditions must occur. Such efforts may spur the concretization of homebuilding and the insurance industry’s support of such initiatives.
[1] The cost to rebuild homes has surged due to inflation in labor and materials. Between 2019 and 2024, construction labor costs rose 40%. The new tariff regime is uncertain. But lumber, steel, aluminum, copper are all likely to record tariff related increases. These added costs borne by the insurer to settle a claim will be passed on.
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