How Climate Change is Fueling an Insurance Crisis and Endangering the U.S. Economy

Three major issues are putting pressure on one of our most important assets: our homes. These are climate change, the lack of affordable housing, and skyrocketing insurance rates.

“Many people used to overlook property insurance, but it’s now a key concern for families and a risk for the housing market,” says Sarah Edelman, former deputy assistant secretary for housing at the U.S. Department of Housing and Urban Development.

Edelman is part of a group of experts who recently discussed the steep rise in insurance costs, driven by more frequent and severe climate-related disasters. A report from the U.S. Treasury’s Federal Insurance Office revealed that from 2018 to 2022, major disaster declarations nearly doubled compared to the average from 1960 to 2010.

During that same time, home insurance rates rose almost 9% faster than inflation, even before considering disasters like Hurricanes Helene and Milton. The first three quarters of 2024 alone saw the U.S. facing about $145 billion in economic losses from natural disasters, with nearly $80 billion covered by insurance.

These rising costs have significant consequences. When homeowners face higher premiums, they may struggle to keep up with mortgage payments. Prospective buyers are finding it harder to enter the market, and developers face challenges in creating new housing. According to Edelman, this situation creates a ripple effect across the entire housing ecosystem.

Insurance companies are often unclear about how they determine rate hikes. As rates become too high, some homeowners resort to lesser-known, unreliable insurers, putting their properties at further risk. “This could lead to a financial crisis,” warns Anne Perrault, senior policy counsel for the Climate Program at Public Citizen. “We’re witnessing the early signs of a downward spiral in certain areas of the country.”

Federal Reserve Chairman Jerome Powell has noted that in regions prone to disasters, access to mortgages could dwindle, leaving many homeowners without options.

According to experts, the insurance industry has not adequately addressed the looming threat of climate change. “The market seems short-sighted,” says Rachel Cleetus, senior policy director at the Union of Concerned Scientists. “Climate scientists have warned us about increasing disasters for years, yet the industry still operates on a narrow timeline.”

Some homeowners might opt to drop insurance altogether, especially if it’s no longer a requirement due to mortgage conditions. “People value their homes deeply and many can’t afford to relocate,” notes Alex Martin, policy director at Americans for Financial Reform. “Simply raising rates won’t solve the issue.”

The struggle with insurance costs is part of a broader climate crisis. Following disasters, the expense to repair homes can soar. For instance, after Hurricane Helene, it was estimated that 74,000 homes were damaged in North Carolina, yet federal funds may only help about 3,500 of those homes.

Recent federal policies have also hindered local governments from implementing effective disaster mitigation strategies. For example, cuts to the U.S. Forest Service and the elimination of the FEMA Building Resilient Infrastructure and Communities program limit resources for necessary improvements that could lower insurance costs.

“Raising insurance rates alone won’t address the root of the problem,” Perrault emphasizes. “Addressing this crisis requires looking at the broader environmental context and ensuring that those responsible for greenhouse gas emissions share in the costs.”

In a time where natural disasters are increasing, the need for a sustainable and transparent insurance framework is more critical than ever. As a society, we must work together to create resilient communities, ensuring safety for all homeowners while addressing the underlying issues of climate change.

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