Welp, this is one hell of an article.
New York Times (gift link):
The insurance turmoil caused by climate change — which had been concentrated in Florida, California and Louisiana — is fast becoming a contagion, spreading to states like Iowa, Arkansas, Ohio, Utah and Washington. Even in the Northeast, where homeowners insurance was still generally profitable last year, the trends are worsening.
In 2023, insurers lost money on homeowners coverage in 18 states, more than a third of the country, according to a New York Times analysis of newly available financial data. That’s up from 12 states five years ago, and eight states in 2013. The result is that insurance companies are raising premiums by as much as 50 percent or more, cutting back on coverage or leaving entire states altogether. Nationally, over the last decade, insurers paid out more in claims than they received in premiums, according to the ratings firm Moody’s, and those losses are increasing.
The growing tumult is affecting people whose homes have never been damaged and who have dutifully paid their premiums, year after year. Cancellation notices have left them scrambling to find coverage to protect what is often their single biggest investment. As a last resort, many are ending up in high-risk insurance pools created by states that are backed by the public and offer less coverage than standard policies. By and large, state regulators lack strategies to restore stability to the market.
“I believe we’re marching toward an uninsurable future” in many places, said Dave Jones, the former insurance commissioner of California and now director of the Climate Risk Initiative at the University of California Berkeley law school.
The turmoil in insurance markets is a flashing red light for an American economy that is built on real property. Without insurance, banks won’t issue a mortgage; without a mortgage, most people can’t buy a home. With fewer buyers, real estate values are likely to decline, along with property tax revenues, leaving communities with less money for schools, police and other basic services.
And without sufficient insurance, people struggle to rebuild after disasters. Last year, storms, wildfires and other disasters pushed 2.5 million American adults out of their homes, according to census data, including at least 830,000 people who were displaced for six months or longer.
“Insurance is where many people are feeling the economic impacts of climate change first,” said Carolyn Kousky, associate vice president for economics and policy at the Environmental Defense Fund. “That is going to spill over into housing markets, mortgage markets, and local economies.”
Several factors are helping to drive the losses in homeowners insurance, including the rising cost of labor and materials to rebuild homes, outdated building codes, and the fact that Americans keep moving to areas that are at high risk of flooding or wildfire.
The industry has seen sustained losses before, including between 2008 and 2012. But experts say the past decade is different because of climate change. As the planet warms and storms and fires grow more intense, the cost of disasters is increasing faster than insurers can afford. A financial model designed for a mix of good and bad years threatens to unravel as more years become bad years.
“It’s becoming an untenable situation,” said Sridhar Manyem, senior director of industry research at AM Best, a company that rates the financial strength of insurers.
California’s property insurance crisis is shaking up real estate in some of the most expensive housing markets in the US. Insurers are charging sky-high premiums or abandoning coverage completely in exclusive enclaves such as Bel-Air, Montecito, Beverly Hills and Napa Valley wine country.
It’s part of a nationwide trend driven by climate change, and the fear is that California could become the next Florida. Homeowners insurance in hurricane-prone Florida costs over three times the national average, and more than a dozen insurance companies have stopped writing home policies there. Average premiums in Florida have gone up more than 100% in three years.
In California, the big worry isn’t a Category 5 hurricane. It’s wildfires devouring multimillion dollar hillside estates.
State Farm General Insurance Co., California’s biggest insurer by market share, announced in March it was discontinuing 72,000 policies, including 30,000 homes, ahead of this year’s wildfire season. Nearly 70% of the houses are in ZIP codes where the median sale price was $1 million or higher last year.
The cancellations included 67% of State Farm policies in Bel-Air’s 90077 ZIP code, 69% in the Pacific Palisades’ 90272 and 46% in Beverly Hills’s famous 90210, according to a filing. In Montecito, whose residents include Oprah Winfrey and the Duke and Duchess of Sussex — aka Harry and Meghan — State Farm axed 28% of its policies.