How Climate Change Affects Insurance Rates

Florida homeowners insurance premiums have surged in recent years. The state's average annual premium is among the nation's highest. Hurricane exposure, litigation costs and a shrinking private insurance market have pushed rates up. 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 faces a similar crisis. Wildfire risk has prompted carriers to restrict new policies across high-risk ZIP codes, and the state's insurer of last resort now covers a larger portion of the market.

Global insured catastrophe losses have exceeded $100 billion annually for five consecutive years, per Swiss Re Institute's sigma 1/2025 report. The global reinsurance market connects these losses across regions. Catastrophic losses in one state push up coverage costs nationwide, even in states that rarely face major disasters.

When a major hurricane, wildfire or flood event generates billions of dollars in insured catastrophe losses, the financial impact moves through the insurance system in stages.

Primary insurers sell policies directly to policyholders. They transfer a portion of their risk to reinsurers, companies that insure other insurers. After a year with large losses, reinsurers increase their contract prices to cover higher expected future losses. Primary insurers pay more for reinsurance and raise their premiums to stay solvent. Policyholders see those increases at renewal.

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 affects all states.

California exemplifies climate-driven insurance market disruption in the United States. After catastrophic wildfire years, including the Camp Fire in 2018 and later large-loss events, multiple insurers restricted new policy writing in high-risk ZIP codes or withdrew from the California admitted market. The admitted market consists of carriers licensed and regulated to sell insurance in the state.

Homeowners who can't get private market coverage have turned to the California FAIR Plan, a state-mandated insurer of last resort. FAIR stands for Fair Access to Insurance Requirements. The plan provides basic fire coverage when private carriers decline to write a policy. It covers fire, lightning and certain other named perils but excludes liability coverage, theft and most protections found in a standard hazard insurance policy. Homeowners on the FAIR Plan typically purchase a companion "Difference in Conditions" (DIC) policy to fill coverage gaps, adding cost and complexity.

The California Department of Insurance has implemented regulatory changes to stabilize the private market. Insurers can now incorporate forward-looking catastrophe models, not just historical loss data, into rate filings. Whether these changes will reverse insurer exits is unclear.

Florida has two major climate-driven insurance risks: hurricane exposure along its entire coastline and flood exposure that extends well inland. The combination has created the country's most stressed property insurance market.

The Florida private market has contracted sharply. Multiple insurers have become insolvent or exited the state. Florida Citizens Property Insurance Corporation, known as Citizens Insurance, is the state-created insurer of last resort. It absorbs policies the private market declines to write. Citizens enrollment has grown in recent years as private options have narrowed. It's now one of the state's largest homeowners insurers.

Flooding is a separate risk. Standard homeowners insurance policies don't cover flood damage or most other natural disasters. That includes hurricane storm surge, one of the Southeast's most destructive flood events. Separate flood coverage is available through the National Flood Insurance Program (NFIP) or private flood insurers.

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

Climate-driven insurance costs spread across the country. Reinsurance is a global market, so catastrophic losses in one region affect the entire system.

When Florida experiences a severe hurricane season, reinsurers revise their loss models and increase contract prices broadly, not just for Florida-exposed business. Primary insurers in Ohio, Minnesota or Colorado purchase reinsurance to cover their books of business. They pay more at contract renewal. Those higher costs show up in premiums charged to policyholders in states that experienced no direct catastrophe losses.

Climate risk extends beyond high-risk geographies. Policyholders in lower-risk states pay for catastrophe losses that occur far from their homes.

Homeowners in high-risk areas can't change the external risk environment, but they can take steps to reduce insurance costs and strengthen coverage.

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. These measures 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, check regularly for private market options. FAIR Plan coverage is narrower and isn't always cheaper.

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 can make older coverage limits inadequate. See our guide to factors that affect insurance rates.