Climate change-fueled disasters are straining homeowners insurance markets in the West and across the country. A new study – based on data from tens of millions of mortgage escrow payments – provides deeper insight into the crisis of access and affordability.
Analyzing the 10-year data set, researchers found that just between 2020 and 2023, insurance premiums rose by 33% on average – faster than inflation, according to one of the authors. Those increases “are highly uneven across geographies,” and now more closely mirror the risk of disasters such as hurricanes and wildfires, the researchers wrote.
“Wildfire risk is front and center when we're thinking about the drivers of increased insurance premiums out West,” said lead author Ben Keys, a real estate professor at the University of Pennsylvania's Wharton School. Pointing to research by the First Street Foundation, he noted that wildfire risk, which is directly tied to climate change, is expected to grow substantially over the next three decades. In a 2023 report, the foundation estimated that the average number of homes and other structures destroyed by wildfire annually will double to nearly 34,000 by 2053.
One of the specific drivers of the premium increases is the rapid rise in the cost of reinsurance, policies that insurers themselves take out to protect against massive claims – costs that are then passed onto homeowners with insurance policies.
“If the conditions for the reinsurance shock continue, we estimate that the top 5% of climate risk exposed homeowners would see increased premiums by 2053 of $700 per policyholder under a conservative climate change estimate,” the paper reads.
“I think that climate change is the key driver that is going to induce more challenges over time,” Keys said. “And insurance markets are importantly the market that is the central intermediator between those changes and household balance sheets. And so the place where most homeowners are going to feel climate change first is in their insurance premiums.”
Keys described insurance markets as “very opaque,” adding that “the industry likes it that way.” He advocated for giving consumers better access to insurance data so that they can shop around and better understand their risk. He also sees promise in home- and community-hardening efforts as a way to keep premiums in check.
“The insurance companies know far more about the disaster risk of your house than you do,” he said.
This story was produced by the Mountain West News Bureau, a collaboration between Wyoming Public Media, Nevada Public Radio, Boise State Public Radio in Idaho, KUNR in Nevada, KUNC in Colorado and KANW in New Mexico, with support from affiliate stations across the region. Funding for the Mountain West News Bureau is provided in part by the Corporation for Public Broadcasting.
