How Climate Risks Are Putting Home Insurance Out of Reach

In a matter of hours, Sanibel went from being an insurer’s dream to a financial nightmare. The National Flood Insurance Program (NFIP), which sells most flood policies, was hit with $620 million in claims, a nearly hundredfold increase from the total that it had paid Sanibel homeowners over the previous four decades.  

But Sanibel wasn’t the only Southwest Florida community to suffer a dramatic reversal of fortune. Homeowners in Fort Myers Beach, Cape Coral, and Punta Gorda received over $1 billion in flood payouts, records show. Meanwhile, property insurers covering wind and other damages paid billions more, helping to make Ian one of the costliest hurricanes in history.

For insurers, the three hurricanes were a rude awakening. After years of underestimating risks posed by climate-fueled storms, wildfires, and other natural disasters, the industry now faces a perilous future. Old models based on stable climates are being challenged by more frequent, extreme, and damaging events — from searing wildfires in the coastal canyons of California, to hail and torrential rain in the Midwest, to explosive hurricanes such as Ian in Florida, Louisiana, and Texas. Now, as sea levels rise, drenching rain storms swell rivers, and hail the size of baseballs pound roofs and cars, the increased costs are pushing insurers to the limit, upending housing markets, and even reshaping the makeup of some communities.

“The insurance crisis in the U.S. is the canary in the coal mine, and the canary is dead,” said Dave Jones, the insurance commissioner of California from 2011-2018 and now director of the Climate Risk Initiative at the Center for Law, Energy and Environment at the University of California, Berkeley. During his time as commissioner, wildfires exploded in Paradise and Malibu, resulting in billions in damages. Coupled with the Trump administration’s aggressive moves to roll back climate initiatives, Jones fears: “We are marching toward an uninsurable future in this country and across the globe; marching into the abyss.”

Jones isn’t alone in such dire warnings. Testifying this February before the Senate Banking Committee, Federal Reserve Chairman Jerome Powell predicted that “in 10 or 15 years there are going to be regions of the country where you cannot get a mortgage [because insurance isn’t available].”

Even more recently, the economists and climate analysts Carolyn Kousky, Spencer Glendon, and Barney Schauble raised the idea that the future may be uninsurable. “As natural disasters grow more frequent, extreme, and damaging, more people and businesses are struggling to afford — and even get — insurance,” they wrote in a recent article. “In places of increased climate risk from disasters such as fires and storms, insurance has gone from an afterthought to a source of concern, dismay, and anger.”

The markets for property and flood insurance are already in crisis, and in some high-risk areas, are broken, analysts say. Dozens of insurers in Florida, Louisiana, Texas, and California have collapsed or been declared insolvent following searing wildfires and catastrophic hurricanes. Meanwhile, prominent national insurers, including Progressive, Allstate, and State Farm, have fled high-risk states or scaled back on writing new policies. In one five-year period, 2018-2023, insurers canceled nearly 2 million homeowner’s policies in the face of rising climate risks — over four times the number that would normally be expected in a year. Many of the notices came with little warning or explanation, leaving homeowners scrambling to find new coverage, no longer a given, and likely at a sharply higher price.

Deborah Brown received notice in 2017 that her family homeowner’s policy was being canceled after years with the same insurer. Her home was 10 miles inland, from Fort Lauderdale, Florida, but insurers considered it to be high risk. When she looked for a new policy, she was quoted a figure of $8,000, Brown recalled, double her last policy, and over three times the national average, about $2,300. “That was the straw that broke our back,” Brown said. She and her husband sold their house and are now splitting their time between an RV and their daughter’s home upstate.

Florida and other high-risk coastal states have the highest rates of non-renewals, data prepared by the U.S. Senate Budget Committee show. However, there are signs that the trend — while not as pronounced — is spreading inland to Iowa, Oklahoma, and other states.

“People always question: Is insurance going to break?” said Benjamin Keys, a Wharton School economist who has written extensively about the impacts of climate change on real estate. “Well, it already broke a long time ago. Private insurers don’t want to write in the riskiest areas. The Florida insurance market has been broken for a long time.”

In 1992, after Hurricane Andrew caused billions in damage in southern Florida, and several companies collapsed or stopped writing policies, the state created Citizens Property Insurance Corporation to act as an insurer of last resort. Although never intended to compete with private companies, Citizens has since grown to become one of the largest insurers in Florida, with as many as 1.4 million policies at one point. Concerned about its growing financial exposure in the wake of Ian, Citizens began “depopulating” its rolls and transferring policies back to newer, smaller private insurers that have entered the chaotic Florida market.

More than 30 states have followed Florida’s path and created their own so-called FAIR plans to fill gaps in the private market. In California, hundreds of thousands of homeowners flocked to the state plan when insurers canceled their policies or stopped writing insurance in the wake of devastating wildfires. But the state policies do not come cheaply, and analysts worry that the small insurers do not have sufficient reserves and reinsurance to cover catastrophic disasters. In 2023, Louisiana was forced to raise the rates of its FAIR plan by over 60 percent in the wake of back-to-back hurricanes Laura and Ida. 

Some analysts believe the federal government may have to step in to prop up the wavering market for home insurance, the way it did decades ago when it created the federal flood insurance program after private insurers abandoned the market. But the federally subsidized flood insurance program has lost billions over the years and currently is about $20 billion in debt to the U.S. Treasury (that’s after the government already forgave $16 billion of its debt). The troubled NFIP recently increased prices, with the average policy expected to double in five years. Tens of thousands of homeowners have canceled their policies in response, and many more are expected to follow.   

“I don’t think the story is insurance won’t be available,” said Keys. “I think the question is affordability and what is the price going to be. For wealthy owners, that may not be a deal-breaker. But others will have to bear more of the risk themselves, either out-of-pocket or by taking out higher deductibles.”

Keys and other analysts estimate that the average cost of a homeowner’s policy nationally has risen between 30 to 40 percent in the last five years — more in high-risk states such as Florida, where there are few regulatory caps and the average premium increased by $1,450 between 2020-2023. Overall, Florida is the most expensive state for homeowner’s insurance, with rates up to four times the national average and painfully high deductibles costing homeowner’s thousands of dollars more. 

The risks associated with our hotter, wetter world are growing as natural disasters become more damaging. Ten of the 20 largest wildfires in California have occurred in the last five years, including the devastating 2025 L.A. fires, while hurricane damages and flood losses have soared to all-time highs. 

Since 2000, Florida has had 36 presidential disaster declarations, with damages from just the last seven years exceeding $300 billion, according to the National Oceanic and Atmospheric Administration. Florida, Louisiana, and Texas alone account for about two-thirds of all hurricane and flood losses. 

For example, between 1979-2003, Florida homeowners filed $1.52 billion in flood claims, data show. Then, in 2004, four large hurricanes struck the state, followed by a string of other storms and floods, including Ian and five other major hurricanes. Flood claims have since swelled to $18.9 billion. Most are in coastal counties along the Gulf of Mexico, including Lee County, home to Sanibel Island.   

Keys said the rising costs associated with sea level change, hurricanes, and other natural disasters should be sending “a loud and booming signal” to the housing market. “There is a certain portion of the population that has been skeptical of climate risk, but when it hits your pocketbook you take it seriously,” he said.

Potential buyers have begun asking about climate risks and demanding discounts on homes located in coastal floodplains, known as Special Flood Hazard Areas, with a 1 percent annual chance of a 100-year storm. The sharp uptick in the cost of home and flood insurance is also dampening demand for homes, with tens of thousands of houses sitting unsold and some buyers avoiding high-risk areas entirely.

Potential buyers are factoring climate risks into their purchasing decisions, notes Selma Hepp, an economist at the research firm Cotality (formerly CoreLogic). “They’re pricing in insurance premiums, future storms, and the potential for resale challenges,” she said. 

The challenges are especially acute in storm-prone Florida, with 1,350 miles of coastline and millions of houses and condominiums perched along shorelines, lagoons, and canals. Now, following three major hurricanes in two years, the housing boom there shows signs of stalling, or even becoming a bubble.

“In Fort Myers and Cape Coral, we have 12,000 properties for sale. Five years ago, maybe there would be 30,” real estate agent Susanne Perstad told The Times of London in April. “There’s so much property for sale — maybe five or six houses on every street — and nothing sells. It’s insane.” 

Back on Sanibel Island, scores of homes and condominiums have been on the market for months, or longer, and owners are offering discounts up to $100,000 to lure buyers.

During Covid, demand for homes soared across Florida, but especially along the Gulf. “There was so much demand, we ran out of inventory, and you could sell anything for whatever you wanted,” said Eric Pfeifer, who owns a popular real estate agency on Sanibel. The median sales price soared to $1.3 million, but has since dropped to pre-Covid levels, about $830,000. “It was unsustainable,” Pfeifer said. “People weren’t thinking about sea level rise and climate change. In hindsight, it appears unfortunate.”    

Thousands of Sanibel homes have been repaired three years after Ian. But a surprising number haven’t been elevated, and with the island less than five feet above sea level, those properties remain vulnerable to future hurricanes and floods. In Ian, older properties, including many at ground level, accounted for about 70 percent of $620 million in flood losses.

Under an NFIP regulation known as the 50 percent rule, if a house is damaged by half or more of its market value, it is required to elevate in order to keep its flood insurance. But some Sanibel homeowners avoided that requirement by requesting new assessments. The new, higher valuations make it less likely damages reach the 50 percent threshold.  

Daniel Moore Thompson said he applied for a state grant to help raise his two-bedroom, two-bathroom house located near Blind Pass, where Sanibel merges with Captiva Island. But he was turned down after the state program ran out of money. “It costs $100,000 or $200,000 to elevate on Sanibel. I didn’t have that with all the other costs I had.”

Thompson got a new, higher assessment, which allowed him to stay on the ground for now. But he still plans to elevate. “It just kind of has to wait until I have the money.” 

The federal flood program paid him the maximum $250,000 to cover Ian’s flood damage to his house, plus $75,000 for contents. “I still have my same homeowner’s insurance, and it only went up about 30 percent,” he said. “When I heard some of the horror stories from my friends, who had to fight their insurers or had their policies canceled, I was lucky.”     

Thompson’s gift shop, Suncatchers, didn’t have flood insurance, and he estimated he lost about $1 million worth of inventory. He has since relocated to an elevated commercial mall on Periwinkle Way.

Even with the challenges, Thompson plans to stay on Sanibel “as long as nature” allows him. “I moved here from Western Pennsylvania. When I saw the nature and the water, I knew this is where I was meant to be. I get up in the morning, walk out my door and fish. I mean who doesn’t want to live by the water?”