A growing number of homeowners nationwide are being dropped by insurance companies as firms and regulators struggle to deal with the unpredictable and costly risks of climate disasters.
Nonrenewal notices surged by nearly 30 percent from 2018 to 2022 to more than 620,000 a year, according to a Treasury report released Thursday that examined 246 million policies nationwide. Nonrenewal rates were nearly 80 percent higher in Zip codes that faced the highest risk from insurance perils such as strong winds and wildfires compared with the lowest risk areas.
The rise of nonrenewal notices, as they are called, has attracted attention and criticism during the ongoing Los Angeles wildfires, where some major insurance companies had said last year they were dropping thousands of homes that ended up burning down in the raging fires.
But it’s not just a California thing. Florida, Louisiana and North Carolina all posted nonrenewal rates higher than the Golden State in 2023, according to a Senate report released in December. Florida’s rate was nearly 3 percent, compared with California’s rate of about 1.8 percent. That report also found an increased rate of nonrenewals nationwide.
The spike in nonrenewals is being driven by the increasing severity of extreme weather events, higher inflation pushing up the cost of rebuilding and stiff regulations that make it harder for insurance companies to raise prices to cover their costs, according to industry officials and consumer advocates.
Insurers also have struggled to accurately price in the risk of promising to rebuild homes in the many parts of the country vulnerable to wildfires, hurricanes and wind storms. The computer models used to identify the riskiest areas, built on historical weather patterns, have been upended by climate change. Porter said he’s heard of hail models that are largely outdated because today’s storms can be so much bigger than in the past.
Homeowners have seen insurance premiums soar — up 33 percent from 2020 to 2023, according to a National Bureau of Economic Research report. Insurance is required in most cases on properties with mortgages.
As prices rise, some have turned to state-run insurance pools as a last resort to find coverage. But others have opted to drop insurance entirely — what’s known in the industry as “going bare.” The number of homes without insurance has nearly tripled since before the pandemic, according to survey estimates.
Last year, California’s largest homeowners insurance company, State Farm, announced it would not renew thousands of policies. The company said it needed to reduce its exposure in high-risk areas and restore its “financial strength” after it had already stopped selling new home policies in the state.
The nonrenewals were the next step, such as dropping almost 70 percent of its policies — representing about 1,600 homes — in the Zip code that includes Los Angeles’ Pacific Palisades neighborhood, among the hardest hit areas during the ongoing L.A. wildfires. It is not known how many of these homes burned down
The cost of insurance will continue to rise as companies try to price in the risk from a rising number of climate threats — potentially leading to some homes and locations becoming unaffordable.
“We are marching steadily to an uninsurable future,” said Davis, the former California regulator.