U.S. Department of Treasury Report: Homeowners Insurance Costs Rise and Availability Declines as Climate-Related Events Take Their Toll

As the latest climate-related crisis unfolds in Los Angeles, Treasury releases the most comprehensive data on homeowners insurance in history, along with a report detailing the higher costs for homeowners and insurers in cases high climate risks.

WASHINGTON The U.S. Treasury Department of Federal Insurance (FIO) today released the most comprehensive data on homeowners insurance in history, along with a major report showing that homeowners insurance is becoming increasingly costly and more difficult to obtain for millions of Americans, as the costs of climate-related events pose increasing challenges for insurers and their customers alike.

The report is based on the most comprehensive and granular overview of the homeowners insurance market to date, covering more than 330 insurers on more than 246 million homeowners insurance policies aggregated at the 2018 zip code level to 2022 (an annual average of 49.3 million policies). . The data was collected through a first-of-its-kind effort by the National Association of Insurance Commissioners, state insurance regulators and the FIO.

Among the main findings of the report:

Homeowners insurance costs are increasing rapidly across the country, although with significant variations by region and zip code. Average home insurance premiums per policy increased 8.7% faster than the rate of inflation between 2018 and 2022, according to the data analyzed. Some consumers have faced premium increases significantly higher than the national average. Homeowners in communities affected by significant weather events pay significantly more than those in other areas. From 2018 to 2022, consumers living in the 20% of ZIP codes with the highest expected annual building losses from climate-related perils paid $2,321 in premiums on average, or 82% more than those of the 20% of zip codes with the lowest climate risk. Policy non-renewal rates are also higher in areas where expected losses from climate-related perils are highest. Consumers located in the highest risk zip codes faced higher policy non-renewal rates, with average non-renewal rates approximately 80% higher than those in the highest risk zip codes. weak. Additionally, average non-renewal rates increased more in the highest risk areas than in the lowest risk areas during this period, indicating that consumers faced decreasing availability.

Climate change makes operations more expensive for insurers. Insurer costs between 2018 and 2022 were higher in areas where expected losses from climate-related perils were highest. The paid claims ratio, which reflects how much insurers paid for claims compared to what they received in premiums, was highest in the highest-risk ZIP codes. These areas had a higher frequency and severity of claims, about $24,000 on average, compared to an average of about $19,000 for the lowest risk areas.

Homeowners insurance is important to American consumers, the economy and the financial system. For many Americans, their home is their largest financial asset, and the cost and availability of adequate home insurance directly impacts housing expenses and home values. The cost and availability of insurance can also have important consequences for local governments whose tax base is based on property values. In addition, homes are increasingly vulnerable to natural disasters. The National Oceanic and Atmospheric Administration reported that from 2018 to 2022, $84 billion in disasters (excluding floods) cost more than $609 billion, and the costs of these disasters continued to rise. since then. Today's report considers homeowners insurance costs in the context of nine types of climate-related risks, explicitly excluding flooding (which is not typically covered by homeowners insurance policies) and unrelated catastrophes to the climate like earthquakes.

Treasury's analysis comes at a time of devastating tragedy, loss of life and destruction from wildfires in the Los Angeles area, Treasury Secretary Janet L. Yellen said. Although it is far from clear what the exact financial costs of this disaster will be, it is a stark reminder of the impacts of the increasing scale of natural disasters on the American economy. Moreover, this disaster alone is not evidence of this impact, with other climate-related events causing difficulty for Americans in finding affordable insurance coverage, from severe storms in the Great Plains to hurricanes in the Southeast. This report identifies alarming trends of rising insurance costs for consumers and insurers themselves, as well as the lack of availability of insurance, all of which threaten the long-term prosperity of American families.

Data and analytics, like those in this report, are critical to helping policymakers understand how significant climate-related property losses spread among homeowners, insurers and governments, said the Undersecretary for Interior Finance. , Nellie Liang. Our analysis is based on a significant collaborative effort by the National Association of Insurance Commissioners, state insurance regulators and the FIO to collect granular data on a national scale to better understand and address current insurance challenges. home insurance. Given the increasing frequency and severity of climate events, it is essential to continue this effort.

In May 2021, President Biden issued Executive Order 14030 directing the FIO to assess, in consultation with states, the potential for major disruptions in private insurance coverage in areas of the country particularly vulnerable to the impacts of climate change .

In the United States, insurance is regulated at the state level. In March 2024, FIO announced it was entering into a first-of-its-kind partnership with the NAIC, on behalf of the nation's insurance regulators, to collect data on the homeowners insurance market. The NAIC shared a subset of the collected data with the FIO, with regular meetings between the NAIC and FIO to collaborate, review and evaluate the data up to and beyond the agreed-upon deadline of September 27, 2024. This report and data collection effort complements the important efforts that states and local communities are undertaking to understand and address market challenges related to the higher costs of climate-related disasters and other factors weighing on markets home insurance.

To promote greater public transparency, while protecting the privacy of insurers and consumers, Treasury is releasing a large subset of aggregated zip code-level data that underlies the analysis in this report. In particular, the data presented in the report is made available for zip codes where there are at least ten insurers and at least 50 policies. This data can be downloaded here. More details on data collection and limitations of the data used in the report and the data made available to the public are discussed in the report.

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