The effects of climate change are increasingly felt, with homeowners across the United States seeing rising insurance premiums. In California, where extreme weather events such as wildfires, floods, and earthquakes have become more frequent, insurance rates have skyrocketed. As these weather-related risks worsen, homeowners can expect higher costs not only in California but in other parts of the country as well.
In California, the rising costs were already a trend before the wildfires in Los Angeles in 2023. Experts believe that the recent wildfires, which could become the most expensive in U.S. history, will drive rates even higher. The losses from the Los Angeles wildfires may exceed $20 billion, according to JPMorgan and Wells Fargo estimates. For residents in the state, the frequency and intensity of natural disasters have directly affected their home insurance premiums.
“Insurance regulators must allow for risk-based pricing in the short term,” said Patrick Douville, vice president at Morningstar. “This means rates will likely rise, and affordability will remain an issue, potentially leading to lower property values and uninsured homeowners.”
California’s Department of Insurance has introduced new regulations that allow for rate hikes in exchange for broader coverage in wildfire-prone areas. In 2024, some insurers raised rates by up to 34%. This increase could continue as the cost of claims and the frequency of fires rise. According to Insure.com, filing just one fire claim can boost premiums by 29%, and two claims can increase them by 60%. As the trend continues, experts predict insurance premiums will keep going up.
Even homeowners outside California aren’t immune to higher premiums. While each state regulates its own insurance rates, the interconnected nature of the insurance industry means that price hikes in one state can affect others. “Insurers will compensate for their losses by raising rates in other areas,” said Holden Lewis, mortgage expert at NerdWallet.
Despite regulations, a 2021 study by Harvard Business School, Columbia Business School, and the Federal Reserve warned that the current insurance system might struggle as climate-related disasters grow more frequent. Insurers, who operate in multiple states, may raise rates in less-regulated states to balance their losses.
Vermont, a state with looser insurance regulations, is also feeling the impact. Michael Barrett, an insurance agent in St Johnsbury, Vermont, has received numerous inquiries about whether rates will increase. “Extreme weather is becoming more common, and insurance premiums will likely reflect that,” Barrett said. Vermont has faced severe weather events, including flooding, which highlights the rising insurance reliance nationwide.
The situation in California is a warning for other parts of the country, especially as climate-related events continue to intensify. In 2022, 27 natural disasters, including wildfires and storms, each caused over $1 billion in damages, according to the National Oceanic and Atmospheric Administration (NOAA). Over 40% of U.S. homes are at risk from environmental hazards like floods, wildfires, and earthquakes, according to Realtor.com.
The cost of home insurance has already jumped dramatically due to the rise in extreme weather events. Between 2018 and 2023, insurance premiums increased by 33.8%, and in 2023 alone, premiums rose by 11.3%. A report by the National Bureau of Economic Research found that from 2020 to 2023, premiums saw an even sharper rise of 33%. Climate-exposed households will see an additional $700 in annual premiums by 2053.
The average cost of home insurance across the U.S. is now $2,181 annually for a $300,000 dwelling limit, which equates to about $182 per month, according to Bankrate. However, the amount homeowners pay will depend on several factors, including the home’s location, the state’s exposure to risks like floods or earthquakes, and the rising costs of repairs.
The cost of home repairs has also increased significantly, especially since the pandemic. Rebuilding a home, which may have cost $166 per square foot before, now costs at least $300 per square foot for a basic rebuild. “Many homeowners simply renew their insurance with the same payout limit, but with rising costs of materials and labor, they may be underinsured,” said Lewis.
To avoid being underinsured, experts recommend homeowners update their home’s rebuilding cost estimate annually. This can be done by contacting an insurance agent or a local contractor. “If your home is destroyed, you need to ensure your policy covers the true cost of rebuilding,” Lewis explained.
Flood insurance is another area where homeowners may be underprepared. A report by the Consumer Financial Protection Bureau found that many homeowners are not adequately covered for flood damage. Since flood insurance is not included in standard homeowners policies, many property owners near rivers or streams are at risk of catastrophic losses without proper coverage.
“Homeowners should regularly review their insurance policy, particularly the rebuilding cost,” said Janet Ruiz, director at the Insurance Information Institute. “It’s crucial to understand how much coverage you need, especially as the risk of natural disasters increases.”
With climate change intensifying extreme weather events, homeowners can expect continued pressure on their insurance premiums. It is essential to stay informed and ensure that insurance policies provide adequate coverage against these evolving risks.
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