Insuring Against the Worst

Amid the wildfires that ravaged Los Angeles last month, the U.S. Department of the Treasury’s Federal Insurance Office (FIO) released the most comprehensive data on homeowners’ insurance in history, along with a report showing that homeowners’ insurance is becoming more costly and harder to procure for millions of Americans as the costs of climate-related events pose growing challenges to insurers and their customers alike.

The report draws data from more than 330 insurers and more than 246 million homeowners’ insurance policies. That data was collected through a first-of-its-kind effort by the National Assoc. of Insurance Commissioners, state insurance regulators, and FIO.

Among the report’s key findings:

• Homeowners’ insurance costs are rising quickly across the nation, although with significant variation by region and ZIP codes. Average homeowners’ insurance premiums per policy increased 8.7% faster than the rate of inflation from 2018 to 2022, according to the data analyzed. Some consumers faced substantially larger premium increases than the national average.

• Homeowners in communities affected by substantial weather events are paying far more than those elsewhere. From 2018 to 2022, consumers living in the 20% of ZIP codes with the highest expected annual losses to buildings from climate-related perils paid $2,321 in premiums on average, 82% more than those in the 20% lowest climate-risk ZIP codes.

• Policy non-renewal rates also are higher in areas with the highest expected losses from climate-related perils. Consumers in the highest-risk ZIP codes faced higher policy non-renewal rates, with average non-renewal rates about 80% higher than those in the lowest-risk ZIP codes. Moreover, average non-renewal rates increased more in the highest-risk areas than in the lowest-risk areas over this period, which indicates that consumers faced decreasing availability.

• Climate change is making it more costly for insurers to operate. Insurers’ costs in the 2018-22 period were higher in areas with the highest expected losses from climate-related perils. The paid loss ratio, which reflects how much insurers paid for claims relative to what they received in premiums, was highest in the highest-risk ZIP codes. These areas had a higher frequency of claims and severity of claims, about $24,000 on average compared to an average of about $19,000 for lowest-risk areas.

Storm Brewing

In a recent article about insurance trends and changes in 2025, Lisa Eugin, manager of Marketing and Administration at Encharter Insurance in Amherst, noted that costs due to increased frequency of natural disasters will likely continue to impact homeowners’ insurance premiums.

“The climate-related disasters are so large that insurance companies will spread the increased costs across the entire country, and this will affect us here in New England. Many companies will be introducing stricter underwriting guidelines or higher deductibles,” she wrote.

“In many cases, we may advise you to leave your policy with the current insurer to avoid a new company inspection with stricter guidelines leading to either cancellation or higher-than-expected pricing,” she added. “On a positive note, many insurers are expanding discounts for smart-home technology, such as security systems and water-leak detectors, which help mitigate risk.”

Financial Preparation Saves Time, Money, Heartache

Wildfires in California. Hurricanes in Florida. While natural disasters like these are less common here in Western Mass., blizzards, tornadoes, fires, and more still pose threats. The experts at Freedom Credit Union shared some advice to help residents prepare in advance to save time, money, and heartache if disaster strikes.

Glenn Welch

“Disaster, whether personal or widespread, can strike anytime,” Freedom Credit Union President Glenn Welch said. “The more you can prepare now, the better off you’ll be later. Just as you stock up on salt, shovels, and other supplies before a blizzard, you should anticipate your financial needs in an emergency, so you have what you need on hand.”

Compiling important documents and storing them in a safety deposit box at your financial institution — or another safe place that is waterproof and fireproof — is the first step. This includes:

• Savings and checking-account numbers;

• Tax statements;

• Insurance policies;

• Debit- and credit-card information;

• Pay stubs; and

• Legal documents, including birth, marriage and adoption certificates, deeds and titles, Social Security cards, military service records, wills, and other estate-planning documents.

Include a list of important contacts and phone numbers, such as your mortgage representative, landlord, healthcare providers, insurance agent, lawyer, and others you might need to reach in an emergency if you didn’t have access to your mobile phone.

“It’s also wise to have cash set aside in case you don’t have access to banks or ATMs,” Welch advised. “Think about what you might need to ensure you can access food and other necessities easily in a time of crisis.”

He added that photos and videos of valuables can also help make insurance claims proceed more quickly after a disaster. “Record a video of your home and its contents, and take pictures of items of special value. Store all the documents, contacts, cash, and images you gather in a single, safe place where you can easily access them if needed. Be sure to add a reminder on your calendar to review all the materials once a year and make any necessary updates.”

Homeowners insurance is important to U.S. consumers, the economy, and the financial system. For many Americans, their home is their largest financial asset, and the cost and availability of adequate homeowners’ insurance has a direct impact on housing expenses and the value of homes. The cost and availability of insurance can also have significant consequences for local governments whose tax bases rely on property values.

Moreover, homes are increasingly vulnerable to natural disasters. The National Oceanic and Atmospheric Administration reported that, from 2018 to 2022, 84 billion-dollar disasters (excluding floods) cost more than $609 billion, and costs for such disasters have continued to rise since then.

Last month’s report considers homeowners’ insurance costs in the context of nine types of climate-related perils, explicitly excluding flooding (which is not typically covered by homeowners’ insurance policies) and non-climate-related disasters like earthquakes.

Insurance in the U.S. is regulated at the state level. In March 2024, FIO announced it was engaging in a first-of-its-kind partnership with the National Assoc. of Insurance Commissioners on behalf of state insurance regulators to collect data on the homeowners’ insurance market. The NAIC shared a subset of the collected data with FIO, with regular meetings between both to collaborate, review, and assess the data.

This latest report and the data-collection effort complements the efforts that states and local communities are undertaking to understand and address market challenges from the higher costs of climate-related disasters and other factors weighing on homeowners’ insurance markets.

Weather or Not

A new study by First Street Foundation called “Property Prices in Peril” analyzes the effects of climate change on real estate, noting at the outset that residential real estate, valued at around $50 trillion, is the bedrock of the U.S. economy, nearly double the country’s $27.4 trillion GDP.

That said, the report noted that climate risk is reshaping real-estate fundamentals, transforming the U.S. housing market through two forces: soaring insurance costs and shifting consumer preferences.

Specifically, First Street estimates that unrestricted risk-based insurance pricing would drive a 29.4% increase in average premiums by 2055 — comprising a 18.4% correction for current underpricing and an 11% increase from growing climate risks.

Meanwhile, by 2055, 70,026 neighborhoods (84% of all census tracts) may experience some form of negative property-value impacts from climate risk, totaling $1.47 trillion in net property-value losses due to insurance pressures and shifting consumer demand.

These trends reach well beyond the U.S. According to a report from the Canadian Broadcasting Co., the Insurance Bureau of Canada recently reported that, as a result of events like that country’s Jasper wildfire and flooding in Eastern Canada, 2024 set a record for insurance payouts in Canada, at $8.55 billion.

This will inevitably lead insurers to raise rates as they try to manage the broader risk. But as premiums rise and some regions become uninsurable, it could have a cascading effect that could lead to a financial crisis, Gary Yohe, Huffington Foundation professor emeritus of Economics and Environment at Wesleyan University in Connecticut, told the CBC.

“What’s happening now is that the really, really dark [climate events] are just catastrophic and all in one place, happening at the same time,” Yohe said, adding that, in terms of insurance, “it creates a societal problem, not just an individual problem.”