The Cost of Climate Change: Rising Homeowners Insurance Rates

By Daniel Brouse
November 13, 2024

The average annual homeowners insurance premium for a $300,000 house varies widely by state, driven by factors like natural disaster risks, repair costs, and location-specific risks. For example, in states with frequent hurricanes, like Florida, the average premium is exceptionally high, around $10,996. In contrast, Idaho has a more affordable rate, at around $1,636, while Pennsylvania averages closer to $1,306. Other states with high premiums include Louisiana at $6,354 and Mississippi at $4,312.

These rates also reflect a significant trend of rising costs, largely due to inflation, increased construction expenses, and more frequent severe weather events. The national average is currently around $2,377, but premiums vary depending on additional factors such as home age, proximity to a fire station, and local building costs.

A list of average annual homeowners insurance premiums for a $300,000 house across each U.S. state:

These values reflect the high variability in rates, with states like Florida and Louisiana seeing particularly high premiums due to frequent hurricanes, while states like Vermont and Utah have relatively lower rates due to fewer natural disaster risks.

Why are California’s rates relatively low given the high number of climate disasters? California, Louisiana, and Florida have state subsidized property insurance which impacts the price. California’s relatively lower average homeowners insurance rate, despite frequent wildfires and some insurers leaving the market, is due to a mix of state regulations, subsidies, and specific factors affecting the insurance market.

1. Regulatory Controls on Rates: California's Department of Insurance tightly regulates rate increases and approval processes. Insurers need state approval to raise premiums, which limits how much they can adjust rates based on risk factors like wildfires. This results in rates that don’t fully reflect the increasing risk of wildfires.
2. California FAIR Plan: For homeowners who can't get standard insurance coverage due to wildfire risk, California offers the FAIR (Fair Access to Insurance Requirements) Plan. This high-risk insurance pool helps maintain some level of coverage in fire-prone areas, though it often comes at a higher cost and covers only basic needs. However, it provides a safety net, reducing pressure on average premiums by ensuring high-risk properties are not covered by standard policies.
3. Market Exit and Coverage Caps: Major insurers like State Farm and Allstate have indeed stopped issuing new policies in some high-risk areas, and other insurers are limiting coverage. However, this shift is recent, so current averages may not yet fully reflect the changes. Over time, as these limitations impact more homeowners, average premiums could increase or force more people into the FAIR Plan, which may be more expensive.
4. Risk Assessment and Geographic Variation: Not all areas in California are equally affected by wildfires. Coastal and urban areas have a lower risk compared to rural and mountainous regions. Since insurance premiums are partially based on location, areas with lower risk dilute the statewide average rate, making it appear relatively lower than what might be expected given the high-profile wildfire damage in certain parts.

While California's wildfire risk is high, average insurance rates appear relatively low due to strict regulations on private insurers and the exclusion of high-risk, state-subsidized policies from these averages. This approach may be unsustainable, and rapid changes are likely -- either through significantly rising premiums or reduced access to private insurance as more companies withdraw from the state. California recently changed its insurance regulations, resulting in dramatically increased rates in areas where coverage is still available.

CONCLUSION

All of these rates are expected to rise by 25% annually for the foreseeable future, driven by factors such as increased natural disasters, inflation, and higher repair and construction costs. In addition, up to 50% of U.S. properties could face challenges in securing private homeowners insurance, particularly in high-risk areas. States most vulnerable to an insurance market collapse due to escalating premiums and insurer withdrawals include Florida, Louisiana, Mississippi, Georgia, Oklahoma, Texas, Arizona, Arkansas, Alabama, New Mexico, Nevada, Colorado, California, and Washington. As natural disasters like wildfires, hurricanes, and flooding become more frequent and severe, these states are increasingly at risk of a market breakdown, which could leave homeowners with limited or unaffordable coverage options.

THE FUTURE
Florida's homeowners insurance market has effectively become socialized, with taxpayers increasingly bearing the financial burden. Due to severe weather risks and skyrocketing claim costs, many private insurers have pulled out of the state or raised premiums to unaffordable levels. In response, Florida has had to expand state-run insurance programs, such as Citizens Property Insurance Corporation, which was originally meant as a last-resort insurer but is now one of the largest insurers in the state. As a result, when large-scale disasters occur, taxpayers often end up covering the costs, either through increased assessments or state funding support. Without major reform or federal intervention, Florida’s insurance market could face even greater instability, pushing more costs onto taxpayers.

Regarding climate change education, while a majority of U.S. parents and teachers support it, Florida's restrictive standards limit teachers' ability to address human-related climate impacts without risking conflicts with official guidelines or community pushback. Yet, the evidence of climate change is undeniable in Florida, which faces a heightened risk of severe environmental impacts. Rising sea levels threaten Florida's extensive coastline, leading to more frequent "sunny day" flooding in areas like Miami and the Keys. Additionally, warming ocean temperatures are fueling stronger, more frequent hurricanes that intensify faster and bring heavier rainfall, as seen in recent hurricanes like Ian and Michael.

In Arkansas, the stance is mixed: the state shows minimal official support for policies addressing human-caused climate change and does not prioritize it as an urgent issue. Discussions around emissions reduction or clean energy transition are limited compared to other states. However, Arkansas is increasingly affected by climate change, evident in more frequent intense rainfall, flooding, and rising temperatures, which are altering agricultural cycles and stressing water resources essential to the state’s economy.