An estimated 39 million homes and businesses in the United States could soon face skyrocketing insurance premiums — if they can even find insurance coverage at all. That’s according to a new report from First Street Foundation, which warns that this “insurance bubble” could lead to a costly, widespread housing crisis coast-to-coast.
Major insurers are withdrawing from California and Florida, while companies there and elsewhere are scaling back to guard against the escalating costs of global warming, but the problem is just beginning, according to a new report out on Wednesday.
For 39 million properties across the country -- one in four in the United States -- the insurance costs do not yet reflect climate risk. They face the same rising premiums or lost coverage as a result of flooding, hurricane winds and wildfires.
“The 9th National Risk Assessment: The Climate Insurance Bubble” was released by the Brooklyn-based First Street Foundation, a nonprofit research and technology group that aims to define the country’s growing climate risk.
Among the additional 39 million properties, according to First Street Foundation, 4.4 million are in zip codes where an average of at least 10 structures are expected to burn down every year, 23.9 million are in areas with a high likelihood of destruction from 3-second wind gusts and 12 million are at significant risk of flooding even beyond the Federal Emergency Management Agency’s flood zones.
“Whether it be wildfire, wind, or flood, they have some level of significant risk from those climate hazards that makes them likely candidates for having either insurance premium increases in the future or potential pullouts of private insurance companies in their communities,” Jeremy Porter, the foundation’s head of climate implications research, told NBC.
The report notes the average cost of wildfires has increased from $1 billion a day through 2016 to more than $17 billion in 2021. The number of buildings destroyed by wildfires is growing faster than the additional area burned, meaning that fires are disproportionately breaking out where people and structures are located.
Since 2020, California has had eight disasters that caused between $20 billion and $50 billion in damages, according to NBC. For Florida, 16 severe storms or hurricanes resulted in between $100 billion and $200 billion in damages.
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So far in 2023, there have been 23 confirmed weather or climate disasters with losses exceeding $1 billion each, according to the National Centers for Environmental Information.
The country is already facing an insurance crisis. In all, 6.76 million properties are already having to rely on a state-run insurer of last resort because no other insurer will provide coverage.
"Private insurers aim to price their risks accurately, so we should pay close attention to the choices that they make.” Benjamin Keys, an economist at the University of Pennsylvania, said in U.S Senate testimony in March.
Louisiana’s Citizen’s Insurance program began the year with an average 63% increase on all premiums. Some of the largest were in the New Orleans area.
“It’s our poor citizens who are affected first,” said Matthew Jewell, the president of St. Charles Parish, east of New Orleans. “Maybe you inherited your house from your mother and father and you just have enough money to pay the bills and now these rates go up. What do you have to do? You either have to sell your home, relocate, foreclose.”
In California, between 2015 and 2021, the state-run FAIR insurance plan has increased by 90% to nearly 270,000 policies, according to First Street Foundation’s report. The average home insurance premium each year is now $1,300, up 16% since 2019, NBC reported.
For Florida, the state-run insurer Citizens Insurance Agency is now the largest insurer in the state, jumping from fewer than 500,000 policies to about 1.3 million. Average premiums have risen to $3,300 from $2,000 a year.
The insurance industry also blames Florida's rising costs to a legal system that left insurers liable for abuse. Insurance Information Institute estimated that between 2012 and 2021, Florida property insurers paid $51 billion to settle litigated claims, with 71% percent going toward legal fees and public adjusters, NBC reported.
“The over reliance of property owners on state run insurers of last resort is a big flashing sign that standard practices in the insurance market cannot keep up with our current climate reality,” Matthew Eby, the founder of First Street Foundation, said in a statement. “We are rapidly moving to a place where the cost of insurance will make the most at-risk homes effectively uninsurable.”
