Property Insurance Crisis Spreads Beyond California as Carriers Face Record Losses
The U.S. insurance industry dropped more than 620,000 homeowners in 2022 as climate disasters and mounting financial losses forced carriers to retreat from high-risk areas, according to a Treasury Department report released January 18, 2025. Nonrenewal notices surged 30% between 2018 and 2022, with Florida, Louisiana, and North Carolina posting higher rates than California. The crisis reached new depths in 2023 as insurers lost $15.2 billion—double the previous year’s losses and the worst performance this century, AM Best reports.
5 Key Points
- Insurers issued 620,000 nonrenewal notices in 2022, up 30% from 2018.
- Florida leads with a 3% nonrenewal rate, exceeding California’s 1.8%.
- Insurance premiums climbed 33% between 2020 and 2023.
- High-risk zones show 80% higher nonrenewal rates than low-risk areas.
- Uninsured homes have tripled in number since pre-pandemic levels.
State Farm’s Strategic Withdrawal Signals Industry-Wide Shift
State Farm’s decision to cease new policy sales and announce widespread nonrenewals in California during 2023 marked a turning point in the insurance industry’s response to climate risks. The company’s withdrawal from Los Angeles’ Pacific Palisades neighborhood affected approximately 1,600 homes—representing 70% of their policies in that ZIP code—just months before devastating wildfires struck the area. State Farm cited restoring its “financial strength” and reducing exposure in high-risk areas as primary motivations. The timing of these nonrenewals drew criticism from homeowners and regulators despite the company providing several months’ notice. California Insurance regulators confirmed that many affected homeowners successfully transitioned to the state-backed Fair Plan, though often at higher premiums and with more limited coverage options.
Insurance Models Fail to Keep Pace with Climate Reality
The traditional risk assessment models used by insurance companies have become unreliable as climate change accelerates, forcing carriers to reevaluate their exposure in vulnerable areas. Jeremy Porter, head of climate implications research at First Street Foundation, points to outdated hail damage models as a prime example. “The computer models used to identify the riskiest areas, built on historical weather patterns, have been upended by climate change,” Porter explains. Dave Jones, who served as California Insurance Commissioner from 2011 to 2018, emphasizes the systemic nature of the challenge: “We’re not going to rate increase our way out of the problem.” The industry’s struggle to accurately price climate risks has led to a paradox where premiums continue to rise while coverage becomes more challenging to obtain in high-risk areas.
Southern States Weather Perfect Storm of Insurance Challenges
Florida’s insurance crisis reached new heights in 2023, with Glades County experiencing the nation’s highest nonrenewal rate at 16%. The rural county’s approximately 2,900 homeowners faced widespread devastation from Hurricane Milton in October, highlighting the vulnerabilities that had prompted insurers to withdraw. In Mississippi, Insurance Commissioner Mike Chaney uncovered Nationwide’s strategy to cancel thousands of Gulf Coast policies—a number carefully calculated to fall just below regulatory reporting thresholds. This discovery led to broader investigations revealing similar patterns in North Carolina, where the company planned to drop approximately 10,000 home policies. Nationwide defended these actions as part of a necessary “rebalancing” of its insurance portfolio in response to “increasingly severe catastrophic losses.”
Record Losses Push Industry Toward Breaking Point
The insurance industry’s $15.2 billion loss in 2023—double the losses recorded in 2022—reflects the mounting challenges of providing coverage in an era of extreme weather events. Karen Collins, property vice president at the American Property Casualty Insurance Association, attributes this financial strain to multiple factors: “There’s a higher frequency of higher severity events, and people are moving to riskier areas.” The 33% surge in premiums between 2020 and 2023 has failed to offset these losses, leading some homeowners to forgo insurance entirely. Industry data indicates that uninsured homes have nearly tripled since before the pandemic.
Regulatory Tensions Shape Market Response
State regulators and insurance companies find themselves at odds over how to address the growing crisis. In California, where homeowners pay among the lowest insurance premiums nationally despite significant risks, Mark Friedlander of the Insurance Information Institute points to regulatory constraints as a key factor limiting insurers’ ability to adjust rates. Florida’s situation presents a different challenge, which Friedlander describes as “a man-made crisis, not a natural disaster crisis” fueled by fraudulent claims. Recent legislative reforms in Florida aim to address these issues, but their effectiveness remains to be seen as climate risks continue to escalate.
Global Reinsurance Market Amplifies Local Impacts
The interconnected nature of the insurance industry means that disasters in one region can affect premiums nationwide. Mississippi Insurance Commissioner Mike Chaney highlights how the Los Angeles wildfires could impact rates in his state through the reinsurance market—the insurance that insurance companies themselves buy. “Reinsurance is the issue,” Chaney emphasizes, noting that when reinsurance costs spike to cover claims in California, the increased expenses often translate to higher rates for customers across the country. This global ripple effect adds another layer of complexity to an already challenging market environment.
FAQ
Q: Why are insurance companies dropping homeowners in California and other states?
A: Insurance companies cite three main factors: increasing severity of extreme weather events, higher inflation pushing up rebuilding costs, and regulatory constraints that limit their ability to raise rates to cover losses. The U.S. homeowner’s insurance market lost $15.2 billion in 2023—double the loss from 2022.
Q: What happens if my insurance company drops my coverage?
A: Homeowners who receive nonrenewal notices typically have several months to find new coverage. Options include seeking coverage from other private insurers or turning to state-backed insurance pools known as “insurers of last resort,” such as California’s Fair Plan. Some homeowners choose to go without insurance—known as “going bare”—though this violates most mortgage requirements.
Q: Which states have the highest rates of insurance nonrenewals?
A: Florida leads with a nonrenewal rate of nearly 3%, followed by Louisiana and North Carolina. California’s rate stands at 1.8%. Florida’s Glades County recorded the nation’s highest local nonrenewal rate at 16% in 2023.
Q: How much have homeowners insurance premiums increased?
A: Insurance premiums rose 33% nationwide between 2020 and 2023. The increase reflects higher rebuilding costs due to inflation and insurance companies’ efforts to cover growing losses from climate-related disasters. Rates vary significantly by location and risk factors.
Q: Can state regulators prevent insurance companies from dropping homeowners?
A: State regulators have limited authority to prevent nonrenewals. While they can restrict rate increases and implement consumer protection measures, they cannot force private insurance companies to maintain coverage in high-risk areas. Some states, like California, require insurers to provide advance notice and assist customers in finding new coverage.
Q: How does climate change affect homeowners insurance availability?
A: Climate change has disrupted traditional risk assessment models, making it harder for insurance companies to price policies accurately. Areas facing increased risks from wildfires, hurricanes, and severe storms see higher nonrenewal rates—nearly 80% higher in high-risk ZIP codes compared to low-risk areas.
Q: Will insurance become unaffordable or unavailable in certain areas?
A: Industry experts, including Jeremy Porter of First Street Foundation, warn that some areas may become uninsurable or face prohibitively expensive premiums. Former California Insurance Commissioner Dave Jones predicts that “climate change in the long term will outrun whatever is being done on the regulatory side.”
Citations
Frankel, Todd (January 18, 2025). California isn’t the only place where insurers are dropping homeowners. MSN News. https://www.msn.com/en-us/news/us/california-isn-t-the-only-place-where-insurers-are-dropping-homeowners/ar-AA1xqaOi
