The threat of climate change to the US insurance industry

Home insurance premiums have risen sharply, creating financial stress and pushing households out of the market

Currently, 1 in 7 owner-occupied homes, or 11.5 million households, are uninsured. As premiums rise further, more households are likely to drop coverage, shrinking the risk pool and concentrating risk among those who remain. This can prompt insurers to raise premiums further still, and in some cases to exit high-risk states altogether.

Increasing climate risk will intensify premium rises and uninsurance rates

The frequency of extreme climate events has risen seven-fold from 16 billion-dollar disasters in 1980–84 to 112 in 2020–24. Higher climate risk could drive up national premiums by 15–35% by 2035. Southeastern states like Louisiana and South Carolina will see the largest increases, exceeding 200% in the high-risk scenario, leaving households in those states spending more on insurance each year than they currently spend on groceries.

Rising climate risk and premiums present significant costs to the economy

Rising premiums and uninsurance are expected to cost households, insurers, businesses, banks and government $1 trillion by 2035, rising to over $3 trillion by 2050. Costs arise through two channels: higher premiums borne by households before any disaster occurs, driving up credit reliance and household debt, and post-disaster recovery costs spread across all sectors. Households bear the largest share, with costs reaching $540 billion by 2035. Insurers face $440 billion in insured losses over the same period, while businesses, banks and government absorb the remainder through uninsured losses, credit defaults and disaster recovery expenditure.

States are taking actions to address the crisis, but effectiveness is mixed and the burden falls primarily on homeowners, insurers and taxpayers rather than the sources of the underlying climate risk

Policy responses across California, Florida, Louisiana, New York and Colorado span three broad areas: insurance market reform, adaptation and resilience programs and climate mitigation. Reforms have largely focused on stabilising market availability, maintaining the viability of policies rather than reducing underlying risk. Adaptation programs are broadly positive but generally not large enough in scale to shift the risk profile meaningfully. Climate mitigation policies, where they exist, are not directly tied to the home insurability crisis. In all cases, the cost burden falls on homeowners, insurers and taxpayers, not on emitters, the primary source of the climate risk driving the crisis.

Read the full report here.