Climate change impacting housing market, insurance industry

Lynn Kirkman and her husband, Robert, moved into their forever home near San Antonio, Texas, nine years ago. But paying for their dream property has become significantly harder.

Last year, the cost of their home insurance policy skyrocketed by $1,000, marking a 40% hike. The couple now pays $3,200 a year for coverage. When they purchased the house, it cost around $1,200.

Why the jump? Insurance companies need more money to pay for the crushing amount of damage claims filed by customers due to the rapid increase in severe weather events brought on by climate change.

In just the last decade, hurricanes, droughts, flooding, wildfires and winter storms have inflicted more than $200 billion in damages across Texas — the costliest in the nation, along with Florida, according to the National Centers for Environmental Information at NOAA.

The same story is playing out across the country. The increase in devastating weather events, combined with an inflation-induced spike in construction costs, are forcing insurance companies to increase rates and, in some cases, stop issuing policies in entire states, adding financial stress to homeowners.

Kirkman, a real estate agent, said she saved a couple of hundred dollars by shopping around for a different policy, but the sticker shock of the $1,000 rate hike still hurts. She and her husband have stopped eating out as much to save money to afford the higher bill, she explained.

"We don't have a choice," Kirkman said. "We have to pay it in order to maintain our loan, but it's just a rip-off."

'Just the beginning'

The number of so-called billion-dollar disaster events related to severe weather has steadily increased in the U.S. since 1980, when three events caused $46 billion in damage.

But 2023 and 2024 marked an unprecedented surge in destruction with a combined 55 events that caused more than $281 billion in damage, including five hurricanes that made landfall in 2024, according to NOAA. That's more than all the billion-dollar events from 1980-1992 combined.

That comes as the cost of home repairs has soared due to inflation, making it far more expensive for insurance companies to fulfill claims. Material costs to replace a roof, for example, have increased by 40% since 2020, according to the National Roofing Contractors Association.

Now, spiking insurance rates to keep up with inflation and riskier weather are leading many Americans for the first time to feel the financial pain created by climate change, argued Jeff Masters, meteorologist for Yale Climate Connections, an independent initiative through Yale University.

"It's just beginning, really, and it's only going to accelerate," he said. "It's going to be a challenging time to try to insure a home for all of our lifetimes now."

A case in point: California's largest insurer, State Farm, in April asked the state's department of insurance for a 17% emergency rate hike to cover $7.6 billion in damage claims from the Los Angeles wildfires — the most destructive in U.S. history. Without a rate increase, the company says those payouts would deplete its reserves.

States in the Midwest are also experiencing the financial pinch brought on by extreme weather.

In 2020, a derecho — a line of intense, widespread, fast-moving storms with damaging winds — spread for nearly 800 miles across the Midwest in less than a day, causing an estimated $11 billion in total damages, making it the costliest thunderstorm event in U.S. history.

Iowa took it the hardest. Thousands of rows of corn were flattened, interstates were closed, and homes and businesses were damaged by hurricane-force winds approaching 140 mph.

Insurers who covered the more than 8,000 homes damaged in Iowa lost $1 billion that year, according to data from the Iowa Department of Insurance and Financial Services.

Like most Midwest states, Iowa was once considered a relatively safe market for insurers, but that's quickly changed as severe weather ramps up across the region.

Iowans are projected to see their homeowners insurance premiums increase by 19% before year's end — the third-highest increase in the nation behind Louisiana and California, according to an April report from Insurify, an online insurance comparison company.

In fact, insurers in Iowa have lost money from 2018-2023, spending $122 on claims for every $100 they've taken in premiums, according to the latest available numbers from Insurify.

Small insurers have abandoned Iowa over concerns they lack the capital to offer plans as the risk of more unpredictable weather patterns increases. Large national insurers such as American National are also leaving Midwest states like Minnesota and South Dakota.

Brian Rhodes, an automotive talent recruiter in Houston, Texas, experienced the panic of losing coverage when Progressive last year pulled out of the Lone Star state. The company reported 40% of all its storm claims in the second quarter of 2024 came from Texas, making it untenable to offer policies.

Rhodes said Progressive hiked his home insurance premiums from around $2,000 to nearly $5,000, which he believed was an attempt to make him drop the policy. It worked. After frantically searching for a new carrier, he found a company that charged about what he currently pays.

"Initially, it was like, 'Oh crap,'" he said. "I'll be honest about that. I was having a conversation with my wife like, 'Hey, this is not good.'"

'Paying for our foolishness'

The rapid rise in insurance rates isn't stopping people from moving and building new homes in some of the highest-risk weather areas in the nation.

In Miami, Florida, new residential construction soared by more than 14% in 2022, according to Cumming Group, a national project management agency. That's despite researchers at the University of Miami projecting the city will be 60% underwater by 2060 due to rising sea levels caused by climate change.

Florida residents already pay the highest homeowners insurance rates in the nation. The average premiums are projected to top $15,000 this year, according to Insurify. Still, new construction continues to rise, though more slowly than the 2022 surge.

Masters, the Yale meteorologist, said that's why Americans all around the country will continue to see skyrocketing insurance rates. National insurers are forced to pass on costs to all their customers to subsidize the risk associated with places like Miami.

"We're paying for our foolishness of building where we shouldn't have been building," he said. "Then we're compounding it with more extreme weather."

That's led homeowners in the Midwest to pay more per capita for insurance in relation to their home's value than those living in expensive residential markets in coastal areas more prone to billion-dollar disasters, explained Gabriel Filippelli, executive director of Indiana University's Environmental Resilience Institute.

"This is the major insurers trying to spread the pain among ratepayers," he said. "But they can only spread the pain so much before they just have to start not insuring properties."

That's happening now at an alarming rate. Consumers in the highest-risk ZIP codes around the U.S. today face 80% higher non-renewal rates than those in the lowest-risk ZIP codes, according to a January report from the U.S. Department of the Treasury's Federal Insurance Office.

A U.S. Senate Budget Committee report last year warned that increased non-renewal rates and a lack of available insurance required to get a mortgage could threaten property values and lead to a domino effect across the U.S. housing market.

Kirkman, the Realtor from Texas, said she would support a policy in which states cap how much insurers can increase rates every year to avoid the 40% price hike she and her husband experienced last year.

But in the end, she explained, it doesn't matter what happens with home insurance rates. Kirkman and her husband love their property and will pay whatever insurers charge in order to stay.

"We're settled here, so it's just a matter of managing what we can," Kirkman said. "Everybody has to have a place to live, so we just have to kind of suck it up."