Science Policy Around the Web — May 5, 2025: Increasingly frequent severe weather events are disrupting the home insurance market and leaving homeowners vulnerable.
How is climate change impacting home insurance markets?
Home ownership was once a quintessential part of the “American Dream.” However, for many homeowners that dream faces an existential threat in the form of ever rising insurance premiums and difficulties accessing a policy.
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From 2020–2023 premiums rose by more than 30% and in parts of the country some insurance companies no longer offer coverage. These changes in the insurance landscape are largely driven by two factors. First, the cost of repairing a home has grown significantly. Second, more claims are being filed as climate change drives more frequent damaging weather events with greater severity. These factors combined mean insurers require more money on hand to cover their costs and one way to achieve this is by raising premiums. As insurance policies are required to obtain a mortgage, consumers have no choice but to pay these costs and thus are turning to policymakers for help.
Home insurance is regulated at the state level which leads to varying legislation across the country. Some states utilize prior approval — a process that involves a regulatory body assessing pricing before policies are offered to consumers; other states simply rely on market forces to keep pricing competitive. There is scope for both greater direct and indirect government intervention. Directly, governments could act as insurers themselves or subsidize insurance in high-risk areas. However, these approaches do not address the underlying issues disrupting the market and governments would experience significant political pressure to keep prices low. Indirectly, governments could offer subsidies for installation of weather proofing materials such as fire-resistant siding and enable more resilient homes to access discounted premiums.
Intensifying weather events will continue to destabilize the home insurance market. Whilst the way forward is uncertain, collaboration between the community, insurers and policymakers is essential if the dream of home ownership is to survive.
Original article by: Meredith Fowlie, Judson Boomhower, Daniel Richter, and Riki Fujii-Rajani, Brookings
Article summary by: Zachary Frangos, PhD
