Different States, Same Problem: A Home Insurance Crisis

The U.S. has more than 95,000 miles of shoreline — and every inch of it is at risk of climate-change-driven storm damage, flooding, and erosion. California and Florida — two of the largest, most populous, and economically robust states — account for 3.5% and 8.8% of the country’s total shoreline area, respectively.

While the two states are on opposite sides of the country, and, in many ways, opposite sides of the political spectrum, they’re case studies in how coastal states are struggling with the environmental and financial effects of climate change.

Both states face escalating damage costs following extreme weather events. And both are wrestling with a home insurance crisis, as insurers leave areas where high risk makes business less profitable or raise rates astronomically to compensate for elevated risk. California has started to rethink its regulatory price controls because of the insurer exodus. Florida, meanwhile, has instituted policy adjustments to crack down on the industry fraud that was costing insurers.

And, as California and Florida struggle with these challenges, data suggests new threats are on the horizon, for these states and coastal states everywhere.

The struggle with weather-related events and insurers

Although billion-dollar weather events and natural disasters are largely driving California and Florida’s insurance crises, additional influences are also in play.

In California, strongly consumer-focused legislation has made it difficult for insurers to be profitable, industry advocates say. State Farm recently announced it won’t renew 72,000 property insurance policies in California, including 30,000 homeowners, rental homeowners, residential community association, and business owner policies.

The nation’s largest home insurer by market share now joins Farmers, Allstate, and multiple other insurers in pulling back from the Golden State market.

Florida faces insurance laws that have made it too easy for litigation, including fraudulent lawsuits, to occur. The state has lost 11 home insurance companies to liquidation since 2017, including five in 2022, all for various reasons. In addition, Farmers, Bankers Insurance, and AIG subsidiary Lexington Insurance have withdrawn from the state, and AAA has chosen to non-renew certain high-risk policies.

Meanwhile, Florida’s insurer of last resort — Citizens Property Insurance Corporation — has become the largest insurer in the state, covering more than 1.4 million policies.

A shrinking pool of insurers is contributing to increasing home insurance costs in both states. And rising home insurance costs may be causing some strapped homeowners to make difficult decisions.

Since February 2023, the number of properties with National Flood Insurance Program (NFIP) policies declined nearly 1%, or 1,800 homes, in California, according to Federal Emergency Management Agency (FEMA) data. And in Florida, 11.9% of homeowners who plan to move within the next year cite rising insurance costs as a motivator, a survey by real estate company Redfin found.

Homeowners running out of options

As the insurance market shrinks in Florida and California, homeowners have borne the burden of heightened costs.

“The rising cost of homeowners insurance is taking a larger share of every consumers’ paycheck today,” says Betsy Stella, vice president of carrier management and operations at Insurify. 

“Homeowners insurance is also difficult to secure in some cases, which affects consumers in different ways. For instance, it’s now critical that a homebuyer check the insurance market before purchasing a house to ensure they’ll be able to get the coverage they need. And, because fewer carriers are in the market, consumers have less choice.”

The median home insurance rate in Florida was $10,996 in 2023 — the highest in the nation — and Insurify data forecasts it to climb 7%, to $11,759, in 2024.

As Florida home insurance rates become more difficult to afford, the state’s flood insurance rates are climbing, too. The NFIP’s rollout of its Risk Rating 2.0 pricing approach resulted in a premium cost increase for the majority of the state’s nearly 600,000 policyholders. Most (72%) saw a $10 monthly increase to their premium, and a further 10% saw a $20 monthly increase. And 5% saw monthly price increases above $20 per month.

But Florida homeowners are doubling down on flood insurance despite the price increases. The number of NFIP policies in the state has grown by 2.8% since January 2023, totaling 46,900 new policies.

California homeowners, meanwhile, are faring better when it comes to home insurance costs. The median home insurance rate in the Golden State was $1,782 in 2023, and Insurify forecasts an increase of 8% in 2024.

Flood insurance rates are climbing in California as well, as FEMA’s new pricing structure created a $10 monthly increase for 73% of California policyholders. Another 4% saw their monthly premiums increase by $20 or more.

Geographic cost differences are dramatic

Florida has 4,200 more square miles of coastline than California, but the Golden State had five times more flooding events than Florida in 2023, according to the U.S. Census Bureau and National Centers for Environmental Information (NCEI).

Coastal counties in the Bay Area and Northern California have a moderate risk of coastal flooding and pay above-average NFIP rates. Counties bordering Nevada in Northeast California paid the highest NFIP rates in the state, per the most recent FEMA data. That region has a high flood risk due to the massive snowpack on the Sierra Nevada mountains.

And California home insurance rates are highest in Southern California and the Bay Area, which face very high risks of wildfires and earthquakes, according to Insurify and FEMA data.

Image sourced from FEMA

Florida is no stranger to high rates, either. Six of the nation’s most expensive home insurance cities are in southeast Florida, and the other four are in Louisiana and Mississippi. All 10 cities are in areas with increased flooding and above-average flood insurance rates, according to FEMA data.

Most of southern and central Florida is also categorized as a very high hurricane risk, and NFIP rates are highest along the Gulf and Atlantic coasts, according to FEMA.

Image sourced from FEMA

Climate change is escalating flooding damage

Florida claimed two-thirds of total NFIP payouts in 2023, at $629 million. And climate change could cause those claims to increase.

The Environmental Protection Agency predicts the sea level will rise one to four feet in the next century, swallowing the current Florida coastline, and the National Oceanic and Atmospheric Administration (NOAA) reported record-high ocean temperatures in Florida in 2023.

Rising sea levels and warming waters fuel storm surges and hurricanes, while stronger storms and tides cause more frequent and costly flooding events.

Today, FEMA classifies over half of Florida’s counties as at least “moderately high risk” or “very high risk” for hurricane damage and riverine flooding. And the state’s entire coastline is at  “moderate risk” for coastal flooding, FEMA says.

California faces similar challenges. The state claimed $59 million in NFIP payouts in 2023, a $40 million increase from 2022.

Los Angeles, in particular, experienced record rainfall this winter — more than half its annual rainfall fell in just four days. The heavy rainfall triggered flash floods and more than 120 mudslides, causing damage across the area’s low-lying geography and exposing its susceptibility to heavy tide erosion.

Legislation looking to turn the tide

California and Florida may have different political mindsets, but each is grappling with the same problem: how to reasonably lower consumer costs and attract insurers back to a state ravaged by climate events that are causing frequent, costly claims.

In Florida, approved insurers are assuming policies from Citizens Property Insurance Group, reducing the financial burden on Florida’s insurer of last resort. Though several insurers pulled coverage in Florida, the Florida Office of Insurance Regulation recently approved eight property and casualty insurers to enter Florida’s insurance market.

Aiming to lower costs, the Florida Senate passed House Bill 7073 in March. The bill reduces property insurance premiums by more than $500 million statewide and includes a one-year premium tax relief on flood insurance policies. Florida legislators also extended the My Safe Florida Home Program that provides grants and matching funds to homeowners making storm-fortification improvements, and established a similar pilot program for condo owners.

Insurers in California have to get permission from the state for any rate increase, which some insurers noted was partly behind the decision to pull coverage. Some insurers are telling California regulators they’ll only re-enter the state if California makes it easier to raise rates when necessary.

Ricardo Lara, California’s insurance commissioner, proposed several regulatory reforms in February and March 2024 meant to streamline rate approvals and restore more insurance options for Californians. These proposals include permitting insurers to use catastrophe modeling.

Florida insurers aren’t rate-restricted and already use catastrophe modeling.

But California insurers can only use historical data to set rates, which Lara says doesn’t account for wildfire mitigation. U.S. House legislators also recently proposed the Disaster Resiliency and Coverage Act of 2024, which establishes a grant program and offers tax breaks to property owners who protect their property against fires and other qualified disasters.

What’s next: Challenges growing for homeowners

As legislators work to solve the insurance crisis in Florida and California, evidence points to the problems continuing and even expanding to other states.

Home insurance rates in Florida climbed 7% this year and 8% in California, but rising rates aren’t confined to those two states. Other coastal states are feeling the pinch as well.

Insurify data analysts forecast Louisiana’s home insurance rates will climb 23% in 2024, the largest increase in the nation. Rates in Maine will likely rise 19%, and rates in South and North Carolina will climb 11% and 10%, respectively.

The national average rate increase is 6%.

As other coastal states begin to experience the struggles California and Florida know well, it’ll bear watching to see if either of these two states can find a solution to its insurance crisis.

Contributors include Chris Shafer, Evelyn Pimplaskar, Julia Taliesin, and Sara Getman