Climate change is fuelling the US insurance problem

 

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The hike in insurance costs in Austin mirrors a crisis unfolding across America – along both coasts, and through the Midwest. "If you're not worried, you're not paying attention," California Senator Bill Dodd warned in 2023, following the release of a report which found Florida, California and Louisiana would see dramatic rises in home insurance premiums.

In 2022, insurance firm AllState paused selling new home and condo insurance policies in California. "Our payments to help California residents recover from accidents and disasters have increased significantly in recent years due to higher repair costs and more frequent and severe weather," says a spokesperson for AllState. "We continue to offer coverage to most existing home insurance customers."

In 2023, State Farm, one of the US' biggest insurance providers, announced it too would stop selling new home insurance policies in California. "[We] made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market," a statement from the company read. It was the latest insurer to pull back from the state, which has been hit by devastating wildfires and floods in recent years, and has the ever-looming threat of a major earthquake. Meanwhile, in Florida, Farmers Insurance discontinued its own-brand home insurance in the state, joining at least a dozen insurers who had already left. "This business decision was necessary to effectively manage risk exposure," a Farmers Insurance spokesperson told the BBC.

The abandonment of these areas is part of a wider story – thanks to climate change, the US is becoming a more volatile place to live. Hurricanes, floods, storms, and fires have caused widespread mass destruction in the US over recent years. It's also becoming more expensive, due to the costs associated with extreme weather events. A report released in 2022 analysed 120 million homes and found one in 10 properties were impacted by natural disasters. Winter storms impacted 12.7 million homes, causing $15bn (£12bn) in property damage in 2021 alone, while hurricanes caused $33bn (£26bn) in damage across 1.2 million homes.

And the future looks even worse. A recent report by First Street Foundation, a non-profit focusing on climate risk research, found 23.9 million properties in the US are at risk from damaging winds, 4.4 million properties at risk from wildfire, and a further 12 million properties have a significant risk of flooding – in addition to properties in the Federal Emergency Management Agency (Fema)'s Special Flood Hazard Areas (100-year flood zones that the government has already identified). "Private insurance companies are effectively labelling areas as uninsurable," the report found....more