‘We’re in a perfect storm.’ Insurers flee parts of America amid the climate crisis and rising costs to rebuild.

‘We’re in a perfect storm.’ Insurers flee parts of America amid the climate crisis and rising costs to rebuild.

By: Posted: June 23, 2023

Homes and businesses destroyed by the Marshall fire outside Boulder, Colorado
Homes and businesses were destroyed by the Marshall fire outside Boulder, Colorado, in December 2021.

  • Homeowners in states prone to wildfires, hurricanes and other disasters risk becoming uninsurable.
  • Some insurers have stopped selling new policies in states like California and Florida.
  • Colorado, which saw its most destructive wildfire in 2021, is trying to avoid that scenario. 
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The droves of Americans moving out west and to Gulf Coast states are putting themselves at risk of becoming uninsurable. 

More extreme wildfires, hurricanes, and other climate-fueled disasters combined with the rising costs of building materials are straining property-insurance providers in California, Colorado, Florida, Louisiana, and Texas — with some companies pulling out of some states altogether. 

“We’re in a perfect storm of market conditions,” Carole Walker, executive director of the Rocky Mountain Insurance Association that represents property and casualty insurers in Colorado, New Mexico, Utah, and Wyoming, told Insider. “We’re seeing escalating catastrophe risk, a historic rise in inflation, and the cost to recover and rebuild homes is increasing.”

In late May, State Farm announced it would stop accepting new applications from home and business owners in California, citing the growing risks of natural disasters and a historic increase in construction costs. The insurance industry also blames a California law that limits how much they can charge customers, including an inability to pass along the cost of reinsurance and to price policies based on future climate risks.

State Farm was the largest property insurer in the state in 2021, when it accounted for about 20% of the market; Allstate made a similar move to pause new policies in California last year. 

“California is a cautionary tale, and I think we’re at a tipping point in Colorado,” Walker said.  

In Colorado, three of every four insurers shrank the number of homeowners on their books between 2021 and 2022 while premiums jumped by an average 52% since 2019, according to a study by the Colorado Division of Insurance. The agency said the trend was state-wide, regardless of wildfire exposure, but premiums were “moderately higher” in high-risk areas. More than half of Colorado’s population lives in those areas.

Both Colorado and California have battled record-breaking blazes and billions of dollars in losses in recent years. Many of the largest blazes in California’s history occurred in the last five years and Colorado’s most destructive wildfire was in 2021. 

A new law in Colorado established a state insurer of last-resort, known as a FAIR plan, that will be set up for residents who can’t get coverage in the private market. Dozens of states have similar backstops, including California, Louisiana, and Florida. Such institutions shouldn’t become “the insurer of choice,” Walker said, because the risk pool needs to be spread out in order to avoid one major disaster destabilizing the entire market. 

That’s the case in Florida, where the state-run Citizens Property Insurance Corporation is now the top underwriter as private companies flee the market, said Mark Friedlander, spokesperson for the Insurance Information Institute. 

Since February 2022, at least seven private companies have declared insolvency, 15 have stopped issuing new policies, and three have voluntarily withdrawn from the state, Friedlander told Insider. The average Florida homeowner pays about $6,000 a year for insurance, a doubling in the last three years.

The main cause wasn’t Hurricane Ian, however. Loose state laws on property-insurance litigation have saddled companies with legal costs — rules that recently changed under Governor Ron DeSantis. Still, Friedlander doesn’t see Florida’s insurance market improving any time soon.

“That’s troubling when we’re back in hurricane season,” he said. 

Research shows that as the atmosphere and ocean gets warmer from climate change exacerbated by human activity, hurricanes can hold more moisture and release more destructive rainfall. Meanwhile, droughts out West have led to longer and more active wildfire seasons.

Beyond the rising risk of disaster, property insurers are also dealing with construction costs that are outpacing inflation, according to an analysis by the Insurance Information Institute. Insurers saw a 55% increase in rebuilding and replacement costs between 2019 and 2022. Contractors’ labor rates also soar after a major natural disaster due to demand, something Florida experienced after Hurricane Ian made landfill in September. 

“Not only are we seeing a big escalation in the number of claims, the cost to pay those claims is skyrocketing,” Walker said.

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