How Climate Change Affects Insurance Rates

Florida homeowners insurance premiums have surged in recent years. The state's average annual premium is among the highest in the nation, driven by hurricane exposure, litigation costs and a shrinking private insurance market. Several major insurers have exited the Florida market entirely or stopped writing new policies, leaving hundreds of thousands of homeowners with fewer choices and higher costs. California has seen a parallel crisis fueled by wildfire risk, with carriers restricting new policies across high-risk ZIP codes and the state's insurer of last resort absorbing a growing share of the market.

Climate change's effect on insurance rates is now a national-level question, not a state-specific one. Global insured catastrophe losses have exceeded $100 billion annually for five consecutive years, per Swiss Re Institute's sigma 1/2025 report. The interconnected global reinsurance market means catastrophic losses in one region ultimately push up the cost of coverage everywhere, including states that rarely experience major disasters.

When a major hurricane, wildfire or flood event generates billions of dollars in insured catastrophe losses, meaning losses paid out under active insurance policies, the financial impact travels through the insurance system in a predictable sequence.

Primary insurers, the companies that sell policies directly to policyholders, transfer a portion of their risk to reinsurers, which are insurers that insure other insurers. After a large-loss year, reinsurers reprice their contracts to account for higher expected future losses. Primary insurers, now paying more for reinsurance, must raise their own premiums to maintain financial solvency. Those increases are passed to policyholders at renewal.

This mechanism explains why a catastrophic hurricane season in Florida can raise homeowners insurance rates in Ohio within one to two annual renewal cycles. The reinsurance market is global, and the repricing cycle does not respect state lines.

California has become the defining case study for climate-driven insurance market disruption in the United States. Following a series of catastrophic wildfire years, including the Camp Fire in 2018 and subsequent large-loss events, numerous insurers began restricting new policy writing in high-risk ZIP codes or withdrawing from the California admitted market altogether. The California admitted market refers to carriers licensed and regulated to sell insurance in the state.

Homeowners unable to get private market coverage have increasingly turned to the California FAIR Plan, the Fair Access to Insurance Requirements plan, a state-mandated insurer of last resort that provides basic fire coverage when private market carriers decline to write a policy. The FAIR Plan is not a replacement for a standard hazard insurance policy: it covers fire, lightning and certain other named perils but doesn't include liability coverage, theft or many other standard protections. Homeowners on the FAIR Plan must often purchase a companion "Difference in Conditions" (DIC) policy to fill coverage gaps, which adds cost and complexity.

The California Department of Insurance has implemented regulatory changes intended to stabilize the private market, including allowing insurers to incorporate forward-looking catastrophe models, rather than only historical loss data, into rate filings. Whether those changes will be sufficient to reverse insurer exits remains an open question.

Florida sits at the intersection of two major climate-driven insurance risks: hurricane exposure along its entire coastline and flood exposure that extends well inland. The combination has produced one of the most stressed property insurance markets in the country.

The Florida private market has contracted sharply, with multiple insurers becoming insolvent or exiting the state. Florida Citizens Property Insurance Corporation, known as Citizens Insurance, is the state-created insurer of last resort that absorbs policies the private market declines to write. Citizens enrollment has grown substantially in recent years as private options have narrowed, making it one of the largest homeowners insurers in the state.

Flooding represents a separate and frequently misunderstood risk. Standard homeowners insurance policies don't cover flood damage or most other natural disasters. This exclusion applies regardless of the cause of flooding, including hurricane storm surge, which is among the most destructive flood events in the Southeast. Separate flood coverage must be purchased through the National Flood Insurance Program (NFIP), administered by FEMA, or through a private flood insurer.

Gulf Coast states including Louisiana, Mississippi, Alabama and Texas have similar hurricane and flood exposure.

Climate-driven insurance costs are more geographically distributed than many policyholders realize. Because reinsurance is a global market, catastrophic losses concentrated in a single region ripple outward through the entire system.

When Florida experiences a severe hurricane season, reinsurers revise their loss models and increase contract prices across the board, not only for Florida-exposed business. Primary insurers in Ohio, Minnesota or Colorado, all of whom purchase reinsurance to cover their own books of business, pay more at contract renewal. Those higher costs are eventually reflected in premiums charged to policyholders in states that experienced no direct catastrophe losses.

Climate risk is not containable to high-risk geographies. Policyholders in lower-risk states are, and will continue to be, financially connected to catastrophe losses occurring far from their homes.

Homeowners in high-risk areas have limited ability to change the external risk environment, but several actions can reduce their insurance costs and improve their coverage position.

Pursue mitigation credits. Many state insurance programs offer premium discounts for home hardening measures, such as hurricane straps, impact-resistant windows and doors and upgraded roofing, that demonstrably reduce expected losses. In Florida, the My Safe Florida Home program provides wind mitigation inspections and matching grants of up to $10,000 for qualifying improvements.

Compare FAIR Plan and private market options. If you've been placed on a FAIR Plan or state residual market policy, periodically check whether private market options have become available. FAIR Plan coverage is narrower in most cases and isn't always less expensive.

Purchase flood insurance if you're in a flood-prone area. Standard homeowners insurance does not cover flooding. NFIP policies are available regardless of flood zone designation.

Review coverage limits annually. Replacement cost inflation means older coverage limits may be inadequate. For a full look at the factors that affect insurance rates, including both controllable and uncontrollable factors, see our guide to factors that influence insurance rates.