July 24, 2024

Editor’s Note: Yuliya Panfil is director of New America’s Future of Land and Housing Program. Dona Stewart is a fellow in the Future of Land and Housing program where she writes about housing loss due to climate risk. The views expressed in this piece are their own. View more opinion on CNN.



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Last month, insurance giant State Farm (California’s largest insurer) announced it would not issue any new homeowner policies in that state, citing rapidly growing wildfire risk. Days later, another major insurer, Allstate, publicly noted that it had also stopped providing California homeowner policies last year due to wildfire risks, high home repair costs and reinsurance premiums. Together with American International Group’s (AIG) decision last year to stop renewing some policies, these moves drastically reduce the availability of property insurance across a state in which more than 2 million of the state’s 14.6 million owner-occupied homes are at high to extreme risk for wildfires.

As climate-driven disasters grow in frequency, severity and cost — according to the National Oceanic and Atmospheric Administration (NOAA), there were 18 separate billion-dollar weather events nationwide last year, costing $165.1 billion — insurers and reinsurers (the companies that provide financial protection to insurers) are moving to mitigate their risk exposure. Some, like State Farm, are deciding to pull policies altogether. In Florida, 10 insurance companies have stopped providing homeowner coverage in the last three years as a result of losses to hurricanes and high levels of insurance fraud and litigation.

Other insurers are setting payout limits or rapidly raising rates for homeowners. Louisiana’s public insurer, Citizens, increased annual premiums to an average of $4,700 last year. These rates exclude flood insurance, which must be purchased separately through the National Flood Insurance Program.

While these decisions make some financial sense, they also threaten the housing security of millions of low- and middle-income homeowners living in climate-vulnerable areas. And while the insurer exodus and severe rate hikes are currently occurring in just a few states, it is likely to spread in the coming years as millions more Americans across the country are impacted by increasingly frequent and severe wildfires, storms and floods, according to New America. Such weather and climate disasters have increased five-fold since the 1970s.

When major insurers flee, they create insurance deserts, characterized by a dearth of providers and extremely costly premiums from the few insurers that stick around. Since most mortgage lenders require borrowers to carry property insurance, losing insurance coverage could cause current homeowners to default on their mortgages. Not being able to afford home insurance could similarly preclude prospective homeowners from obtaining a mortgage loan.

The result is a sort of climate gentrification, where only homeowners who don’t require a mortgage are able to buy in uninsurable areas. These homeowners roll the dice that their home will be spared from disaster, knowing that if disaster does strike, they will be on the hook for rebuilding.

Despite the risks of not carrying home insurance, this phenomenon is already happening. An estimated 13% of homes in Florida are not covered by property insurance, according to the Insurance Information Institute, and this percentage is likely to increase as premiums rise.

While it’s tempting to think that only the rich would find themselves in this situation, this group also includes longtime homeowners who have already paid off their mortgage. It is precisely these people — often elderly and on a fixed income — who are in most dire straits, without the means to move away or the means to rebuild if their uninsurable home is damaged or destroyed.

Meanwhile, many of the homeowners impacted by rate hikes are already financially strained. For these homeowners, even a small insurance rate increase will force them to sell their homes and enter an unaffordable rental market. For renters looking to become first-time homeowners, the addition of high home insurance rates on top of high home prices and high mortgage interest rates puts homeownership out of reach.

These impacts will likely widen America’s already stark racial wealth gap (the average White family has nearly 10 times more wealth than the average Black family, according to a study by the Federal Reserve Bank of Minneapolis). Homeownership is intrinsically linked with the ability to build wealth, and has become an economic stepping stone that older generations pass on to future generations. But an analysis by the National Association of Realtors showed that in 2021, 29% fewer Black families own homes than White families. As rising insurance rates render homeownership unaffordable, even more Black households will be precluded from purchasing their first home, or staying in the home they currently own.

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Not only that: Americans of color are more likely to live in areas where home insurance rates will likely rise the fastest. America’s history of discriminatory housing policies has resulted in lower-income and minority communities living in areas at higher risk of flooding. These families’ homes are also more likely to be older and less able to withstand weather events. That means wealthy residents are able to rebuild (often with bigger and more expensive homes) and return after a disaster, while for others, temporary displacement turns permanent.

We are only beginning to see the impact of home insurance deserts on the housing security of the most vulnerable Americans. California, Florida and Louisiana are the canaries in the coal mine, alerting us to what lies ahead. The policy choices that state regulators and local and federal leaders make now will determine the housing security of millions of Americans living in increasingly vulnerable (and uninsurable) parts of the country.