“New research shared with The New York Times estimates the extent to which rising home insurance premiums, driven higher by climate change, are cascading into the broader real estate market and eating into home values in the most disaster-prone areas.
The study, which analyzed tens of millions of housing payments through 2024 to understand where insurance costs have risen most, offers first-of-its-kind insight into the way rising insurance rates are affecting home values.
Since 2018, a financial shock in the home insurance market has meant that homes in the ZIP codes most exposed to hurricanes and wildfires would sell for an average of $43,900 less than they would otherwise, the research found. They include coastal towns in Louisiana and low-lying areas in Florida.”
Changes in an under-the-radar part of the insurance market, known as reinsurance, have helped to drive this trend. Insurance companies purchase reinsurance to help limit their exposure when a catastrophe hits. Over the past several years, global reinsurance companies have had what the researchers call a “climate epiphany” and have roughly doubled the rates they charge home insurance providers.
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Not just home insurance. Cars taking a beating.
According to the Official Data Foundation’s analysis of government data, auto insurance premiums have increased 161% since 2008, outpacing general inflation by a wide margin. In the same timeframe, insured losses related to hailstorms — a major driver of auto claims — have increased fivefold in the U.S., costing an estimated $10 billion annually. Research has linked climate change to larger hailstones, which can produce deeper and bigger dents.
As the incidence and severity of hailstorms, hurricanes, flooding, and tornadoes increase, insurance providers field more claims and face higher repair costs. These outcomes often prompt premium increases, particularly in areas prone to severe weather.
When it comes to natural hazards, few perils strike with the frequency, cost, and destructive power of hail. According to recent data, hail damage accounted for 50% to 80% of claims filed due to thunderstorm-related losses, causing an estimated $10 billion in property damage across the US each year. For Bryan Wood, meteorologist and catastrophe analyst at Munich Re Specialty, the data really speaks for itself.
“Hail is the costliest sub-peril of severe convective storms, compared to tornado and wind,” he told IB. “It’s also escalating in its frequency as well. We´re seeing the cost of roofing materials jump up in the US by around 18% since 2020—so it´s a complex problem.”
And while hail can strike anywhere, some US states bear the brunt. As Wood told IB, Texas is by far the most prone to these storms—after all, it’s in the middle of the meteorologically favorable area for production of hail. Other hail-prone states include Kansas, Oklahoma, Nebraska, and Missouri—together forming what meteorologists often call “hail alley.”
Insurance companies classify severe thunderstorms and their side effects — including hail — as “secondary perils.” Although they can turn deadly, thunderstorms are more localized than earthquakes or hurricanes, meaning their financial impact is usually more contained.
But the damage done by thunderstorms in the US — and, more surprisingly, in Europe — has been steadily ratcheting up in recent years, belying the “secondary” label. In the decade from 1980 to 1989, the US National Oceanic and Atmospheric Administration reported only eight severe storms in the US that each caused $1 billion (adjusted for inflation) or more in damage. There have been 67 such storms just since 2019.
New York Times again:
Benjamin Keys at the Wharton School of the University of Pennsylvania and Philip Mulder of the University of Wisconsin-Madison, the authors of the study, which was published this week, have called these swift changes “a reinsurance shock.” For some Americans, these changes have made it unaffordable to remain in homes they have lived in for decades.
“Homeowners don’t appreciate or don’t understand that we are living in a much riskier world than we were 25 years ago,” Dr. Keys said. “And that risk? They have to pay for it.”
After analyzing 74 million home payments — which included mortgage, taxes and insurance and were made between 2014 and 2024 — the researchers found that a rapid repricing of disaster risk had been responsible for about a fifth of overall home insurance increases since 2017. Another third could be explained by rising construction costs.
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In parts of the hail-prone Midwestern states, insurance now eats up more than a fifth of the average homeowner’s total housing payments, which include mortgage costs and property taxes. In Orleans Parish, La., that number is nearly 30 percent.
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High insurance prices and interest rates are making it harder than ever for first-time buyers to purchase homes, said Nancy Galofaro-Cruse, a senior loan officer with CMG Home Loans who works with many of Ms. Johnson’s clients. She estimated that more than a third of would-be buyers in the area backed out of the market this year after insurance and interest rates pushed their total monthly housing costs out of reach.
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As insurance becomes more expensive, home values will need to adjust for potential buyers to afford their monthly costs, industry analysts say. And if home values fall, lower property tax revenue could mean less money for local governments to pay for essential services or affect the ability of those governments to borrow money.