Millions of American homeowners like Mary Morse are in a financial bind, facing increasing risks from wildfires and floods linked to climate change, while their home insurance premiums are skyrocketing. The crowning blow increasingly comes when insurers withdraw coverage, putting individuals and even entire communities at risk.
“I got a letter from my insurance company saying, ‘We will no longer be serving your area,'” Morse, 75, told CBS News from her home in Pine Cove, California. “I even sent [the insurance agent] a picture of my fire hydrant. It didn’t help.
The growing wildfire threat is causing some parts of California to become “essentially uninsurable,” according to a new analysis from the First Street Foundation, a nonprofit that studies climate risks, first shared with CBS News. The research has alarming implications for homeowners across the U.S., as even residents of landlocked states like Kentucky, South Dakota and West Virginia face significantly higher insurance costs as damage increases from extreme weather, which experts attribute in part to climate change.
The analysis found that about 35.6 million properties — a quarter of all U.S. properties — face rising insurance prices and reduced coverage due to high climate risks. But the rise in insurance costs isn’t just putting a strain on homeowners’ budgets – the higher costs are also devaluing their properties, First Street said.
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“Absolutely paralyzing”
“You’re talking about getting a letter in the mail saying the policies are giving increases anywhere from 60% to up to 80%,” said Matthew Eby, CEO of First Street. “This is paralyzing. Absolutely paralyzing. And so from an investment scenario, these houses are not something you would invest in.”
Morse said she put her home on the market for a year, but it didn’t sell – a failure she attributes to the recent rise in mortgage rates and the withdrawal of her insurer from her area.
“At the same time as fire insurance went away, interest rates rose. And I think that combination made it really difficult for people to buy houses,” she said.
Located in Riverside County, California, just over 100 miles southeast of Los Angeles, Pine Cove is one of the 10 worst ZIP codes for non-renewed insurance in the U.S., according to First Street. The company also found that Riverside County is at greatest risk of losing homes and other properties due to wildfires each year.
Insurer of last resort
Morse ultimately settled through her state’s “insurer of last resort,” the California FAIR Plan. But at a cost of nearly $2,000 a year, she’s paying twice as much for coverage that isn’t as comprehensive as her previous policy, and she said she’s worried the rate will likely continue to rise.
“I’m 75 years old and I still work so I can afford my mortgage,” she said. “If this continues as it is, I will have a problem.”
Several major insurers have stopped renewing their policies in states affected by climate change. Allstate and State Farm recently announced they were eliminating some coverage in California, and AAA has chosen not to renew some policies in Florida.
When that happens, government “insurer of last resort” programs offer homeowners some coverage, although First Street noted that the premium is often “many times” the cost of their lost policy and offers less protection.
The insurance industry, in turn, says the frequency and severity of claims are increasing, making insurers more cautious when deciding where to offer coverage. “[T]”Its rising claims costs are being passed on to consumers in the form of higher insurance premiums,” the National Association of Insurance Commissioners told CBS News in response to First Street’s findings.
Despite these challenges, millions of Americans continue to move to regions prone to extreme weather and natural disasters.
“People are not that rational. So there are a lot of people who just want to live in Florida because it’s beautiful, it’s by the ocean and the sun is shining,” Eby said. “And as long as that happens, this risk bubble, the insurance bubble that we see will continue to grow.”
How big a hit was it?
If an insurance company decides not to renew coverage against risks such as fires and floods, this can result in an immediate loss in the value of a property.
First Street found that a Florida homeowner who was excluded by an insurer faced a 19% to 40% loss in property value. This is because the homeowner must obtain coverage from the government’s insurer of last resort, Citizens Insurance Agency. Higher insurance rates from citizens would lower the value of the home, First Street noted.
Some homeowners in regions at higher risk for climate disasters are going a step further and foregoing disaster insurance altogether.
Mud surrounds a house damaged in a flash flood caused by a monsoon thunderstorm that dumped rain on a region still recovering from Tropical Storm Hilary on September 2, 2023 in Thermal, California. David McNew/Getty Images
Take Jack Anderson of Key West, Florida. Anderson told CBS News that he stopped covering storms and floods when prices went “crazy.” He estimated that insuring his home through Citizens would require $7,000 a year. He and his wife then decided to give up catastrophic insurance, although, as he noted, they have home insurance, “just so no one thinks we’re really crazy.”
Anderson said his 115-year-old home has seen many storms.
“As investors say, past performance is no guarantee of future returns,” he told CBS News. But he added, “We don’t know what’s going to happen here as these storms get worse, but it just feels more sensible to us” to set aside the money themselves in case they need to make repairs during a storm.
Living in an insurance bubble
The insurance industry is raising rates, requiring higher deductibles or even withdrawing coverage in regions hard hit by climate change, such as Florida and Louisiana, which are prone to flooding, and California because of the risk of wildfires.
But other regions in the U.S. may now be living in an “insurance bubble,” meaning homes may be overvalued because insurance companies understate the risk associated with climate change in those regions, First Street said.
Already, 6.8 million properties are affected by higher insurance premiums, canceled policies and lower appraisals due to higher operating costs, and another 35.6 million homeowners could face similar issues in the coming years, First Street noted.
“Ultimately, we built in the wrong areas, with the wrong building codes, and we suppressed prices and told people it was OK for decades,” Eby said. “And all of this is coming to a head right now because insurance is at the tipping point of the cost of all the decisions we’ve made in the past.”
– With reporting by Ben Tracy of CBS News