Insurance Pullbacks in Disaster-Prone Areas Threaten Homeowner Coverage

The increasing frequency and severity of extreme weather events, including wildfires and hurricanes, is prompting many insurance companies to withdraw from disaster-prone regions such as California and Florida. This withdrawal limits the availability of homeowners insurance in these high-risk areas, exacerbating challenges for prospective and existing homeowners. Mortgage lenders typically require homeowners insurance as a precondition for loans, and continuous coverage is necessary during the mortgage term to avoid lender-procured force-placed insurance, which can be costly.

Federal Reserve Chair Jerome Powell highlighted during a Senate Bank Committee hearing that banks and insurers are retreating from high-risk coastal and fire-prone areas, potentially restricting mortgage availability in these regions over the next decade. The insurance losses linked to climate-driven events are substantial, with projected climate-related foreclosures costing insurers $1.21 billion in 2025 and early-year California wildfire losses estimated at $50 billion.

Insurance premiums have risen nationwide, with a 24% increase from 2021 to 2024. However, home insurance in the riskiest zip codes has surged far more sharply, reaching costs on average 82% higher than in the lowest risk areas. For example, premium hikes in Utah have approached 59%, and major insurers like Allstate and State Farm have scaled back operations in Florida and California.

Homeowners facing insurance cancellations tied to broad insurer pullbacks may find limited replacement options. State-run FAIR plans offer an alternative by providing minimal coverage for homeowners challenged to secure traditional insurance due to high risk. However, FAIR plans typically cover only basic dwelling and personal property losses at cash value, not replacement cost or additional protections such as liability and loss of use.

These insurance market shifts underscore the importance of evaluating insurance availability and coverage details before purchasing property in disaster-prone areas. Increasing premiums, limited insurer participation, and reduced coverage options pose growing risks for homeowners and lenders alike in these vulnerable regions.