How climate risk—and losses—are creating high prices for home insurance

The inflation shock of 2021–22 was painful, yet for most of the macroeconomy, it proved less permanent and more akin to a wartime shock (as we expected, and wrote). This has not been the case, however, for one corner of the U.S. economy: Home insurance inflation is very much a force now, and it is spiraling higher.

While insurance inflation is not well measured by the standard CPI, we find evidence of this micro crisis considering alternative data. Exhibit 1 shows that both U.S. homeowner insurance costs and CPI inflation increased gradually from 2013 to 2018. But since 2019, they turned up sharply and diverged: CPI has risen about 23% since versus home insurance inflation at 49%.

What is driving this emerging home insurance inflation crisis is complex. Next, we’ll consider a set of salient issues:

• Climate-related losses are making home insurance unprofitable for providers
• Home location: As fires, storms and hurricanes are concentrated, so too are policy non-renewals
• The budding home insurance crisis has not yet hit home prices in the aggregate
• Florida home prices are the exception…and likely a harbinger
• What you can do

Insurance companies’ profitability is an important issue here: Insurers profit when the premiums they collect from homeowners exceed their payouts for homeowner losses (known as underwriting losses; we leave aside here the returns earned by investing premium dollars). In general, in recent years, insurers underwriting the homeowners segment have sustained underwriting losses each year from 2017 to 2023, except for 2019, according to a recent report from the U.S. Treasury Department.⁴ Significant losses from climate-related events caused the underwriting unprofitability during this period.

To be sure, many other factors besides climate-related losses are involved in insurance price inflation.⁵ During the pandemic years, the generalized rise in inflation and building costs was primary. But now, the primary cause is growing climate risk, and insurers trying to get ahead of it.

Insurers’ determination to take climate risk more seriously is evidenced by the fact that calculations of future climate risk have forced them to drop many homeowners. And these non-renewal actions are, in turn, inflating home insurance costs as a function of supply and demand: Less supply of insurers means higher prices for a homeowner insurance contract.

Insurers, using the extensive information they collect about climate risks and homes, have increasingly chosen not to renew policies, depending on the precise location, because the climate risk has made it no longer profitable to operate there.

No matter how the data is analyzed, the bottom line is unequivocal: Across the United States 2018–2023, there was a clear correlation between the non-renewal rate (itself a proxy for home insurance inflation, given the supply-demand dynamic) and climate risk.

A special concern for owners of top-tier homes

These issues may be especially critical for our Private Bank clients. We’ve found evidence of a strong correlation: Luxury housing is more often situated in climate risky areas where insurers are pulling coverage. We analyzed the data at the county level across the United States and found that high-value homes are experiencing double the correlation (versus low-value homes) with insurance policy non-renewal.⁸ And the relationship is strongly linear: The greater the home value, the higher the non-renewal rate.

Why? Hypotheses include:

• Top-tier homes may more often be located on the coast, for example, and thus more prone to flooding, or near (or in) a forest with higher wildfire risk
• Insurers of wealthy areas may be more cautious about higher potential losses (larger claims) in such higher climate risk–prone areas

If this sounds alarming, keep it in perspective: So far, the budding home insurance crisis is not yet a fundamental driver of U.S. home prices. We plotted the Senate Budget Committee data on policy non-renewal alongside home price appreciation at the state level and found no meaningful relationship at this time.⁹

Yet we think the time is ripe for discussing it, even as home insurance pricing and availability are not yet the defining features of the U.S. housing market. We believe getting educated can help, especially for those considering buying in high-risk areas. Higher prices in those areas may be related to their uninsurability, and could be the seeds of a future crisis.

So we don’t take comfort in home prices’ seeming immunity from climate risk and the emerging insurability crisis. If home prices were already reflecting these risks, it would offer buyers greater accuracy and transparency.

As the Senate Budget Committee noted, climate-related disasters might wipe out 9% of the value of the world’s total housing stock by 2050, valued at $25 trillion.¹⁰  Dramatic, but worth bearing in mind.

Florida stands out in this context. It’s a market where house pricing does seem to be coming primarily under the influence of climate risk and associated higher insurance costs. Florida condominium prices declined more extremely than condo prices in the rest of country, according to a data analysis by ResiClub, a housing market research firm.

ResiClub found condo prices fell in 92% of Florida’s markets over the last 12–18 months, and said the evidence shows this phenomenon was driven, in part, by climate risks and by insurers voting with their feet. Insurers have indicated they’re less comfortable in Florida than in other U.S. states (Exhibit 4).¹¹

Also, Florida and Louisiana stand out for experiencing the biggest spikes in home insurance costs, and the Senate report found that Florida saw the largest jump in the rate of non-renewal (1% of homeowners’ policies were canceled in 2019; that tripled to 3% in 2023). States hardest hit by surging non-renewals in that time period, after Florida: Louisiana, Oklahoma, Massachusetts, Mississippi, North Carolina, Connecticut and Rhode Island.

A multitude of causes explain Florida’s home price declines. In September 2022, Hurricane Ian, which caused an estimated at $112.9 billion in damage,¹²  was a big contributor, ResiClub notes. The collapse of the 12-story beachfront Surfside condo in June 2021 and the associated fallout took a significant toll. Strained demand is also emerging in Florida as a result of a pandemic home price spike, a spike in mortgage rates, higher insurance premiums and higher homeowner association (HOA) fees—together creating one of the most significant declines in recent housing valuations in the country.¹³

If you don’t live in, or intend to move to, the “Sunshine State,” remember that its troubles may be a harbinger for other risk-prone areas. Spiraling home insurance costs could become a fundamental driver of home prices across a much wider set of geographies.

Here’s some advice so you can take action:

• Most of all, understand climate risks’ local and regional variations
  They may not always be immediately obvious. California and Florida are considered most at risk, yet other states carry high risks too, and may be far less prepared for a disaster. Hurricane Helene (2024), which devastated North Carolina and Tennessee, is one example.
• Reduce your home’s vulnerability
  How can you take action? It might mean implementing climate-resilient building codes for new construction, or retrofitting an older home that isn’t up to code. Even though three out of four people surveyed said extreme weather posed the greatest risk to their homes, only one in two have taken any action to reduce that risk¹⁴
• When considering insurance, weigh your options and ensure you exhaust all the available resources
  More than ever, we are seeing clients engage with multiple insurance brokers to ensure they are exploring all possibilities and uncovering the best possible terms. This is very important in the current expensive and challenging home insurance market, particularly in highly impacted states such as Florida and California.
• Consider a higher deductible
  Raising your deductible above the standard 5% (to 10%, 15% or even 20%) could potentially materially reduce the cost of insurance so that it isn’t prohibitively expensive. Bear in mind that should you need to file a claim, this would increase your out-of-pocket costs before your coverage kicks in. Some clients are willing to take the risk of a little bit of self-funding to save a significant amount in premium payments.
• Be aware of local market differences
  For instance, wind insurance in Florida and fire insurance in California are required as part of standard policies, and have become significantly more expensive and sometimes difficult to obtain. Some brokers in those states may be more resourceful and responsive (though perhaps also more expensive) than others.
• Consider insurance challenges in the context of your long-term wealth plan
  If you had to pay X amount more for insurance, how might that affect your long-term allocations and wealth goals?
• Think about ways to get more financially creative
  If you don’t have a mortgage and so can choose to be uninsured, perhaps consider, as part of self-funding, the idea of a hedge: buying a catastrophe bond that would pay out in the event of a climate disaster, offsetting losses. Another approach to examine might be index-based insurance that can be more targeted to a specific climate peril.¹⁵

¹ “Next to Fall: The climate-driven insurance crisis is here—and getting worse,” Senate Budget Committee Staff Report, December 2024.

² Lois Parshley, “As climate risks mount, the insurance safety net is collapsing,” Grist, October 10, 2023. https://grist.org/economics/as-climate-risks-mount-the-insurance-safety-net-is-collapsing

³ Jason Woleben, “US homeowners rates rise by double digits for 2nd straight year in 2024,” S&P Global, January 21, 2025. https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/1/us-homeowners-rates-rise-by-double-digits-for-2nd-straight-year-in-2024-87061085

⁴ “Analyses of U.S. Homeowners Insurance Markets, 2018–2022: Climate-Related Risks and Other Factors,” Federal Insurance Office, U.S. Department of the Treasury, January 2025.

⁵ “A range of intersecting and often overlapping factors may affect the increasing cost and decreasing availability of homeowners insurance, including inflationary pressures reflected in rising replacement and building costs; elevated cost of reinsurance; the movement of people into riskier areas; state insurance regulation of insurance rates and moratoriums on policy nonrenewal or cancellation; increasing litigation-related costs and increasingly frequent and severe climate-related disasters. More research is needed to isolate and quantify their independent and interdependent impacts.” Italics ours. Senate report, 2024.

⁶ Federal Insurance Office, Treasury Department, 2025.

⁷ Senate Budget Committee, December 2024.

⁸ Results available upon request.

⁹ Results available upon request.

¹⁰ Senate Budget Committee, December 2024. The report quotes “A $25 trn Hit: Global Warming is Coming for Your House,” The Economist, April 11, 2024, which extrapolated from MSCI data, noting MSCI included property damage and transition investments. https://www.economist.com/leaders/2024/04/11/global-warming-is-coming-for-your-home

¹¹ Lance Lambert, “From boom to correction: Five reasons Florida’s housing market has weakened,” ResiClub, January 31, 2025.

¹² Hurricane Ian was the third costliest hurricane in U.S. history.

¹³ Lambert, January 2025.

¹⁴ Sarah Kapnick, “Insurance: Weathering the storm of inflation, climate change and market-distorting state regulation,” J.P. Morgan LLC, March 31, 2025. https://www.jpmorgan.com/insights/sustainability/climate/homeowners-insurance-future

¹⁵ Kapnick, 2025.