The Looming Crisis in Home Insurance

Dan Nicholson

The iconic American dream of homeownership is at risk, but not in ways one might typically expect. 

According to the First Street Foundation, a massive mismatch exists between the threats of climate change and the insurance premiums homeowners are paying. Nearly 39 million properties across the U.S. are insured at rates that fail to account for the increasing risks of natural disasters. State regulations have previously provided a cushion, maintaining artificially low premiums, but this might soon change, leading to a huge market correction. The upcoming crisis is aptly termed by some experts as a "climate insurance bubble".

The Alarming Reality of State-Backed Policies

As private insurers recede from high-risk zones, state-run “insurers of last resort” step in to fill the gap. However, there's growing concern about the sustainability of this approach. Matthew Eby, Executive Director at First Street, expressed his apprehension: "The over-reliance of property owners on the state-run insurers is a big flashing sign that standard practices in the insurance market cannot keep up with our current climate reality." This could have severe implications for property values and the broader housing market.

Wildfires: The Litmus Test

Wildfires, particularly in states like California, offer a glimpse into the evolving insurance landscape. Even with increased federal efforts to combat these fires, the devastation they cause is escalating. Since 2009, structures destroyed by wildfires more than tripled, touching an average of 17,000 per year. Such statistics are causing insurance powerhouses like State Farm and Allstate Corp. to reevaluate their stance, often leading to non-renewals or retreat from high-risk areas.

The Domino Effect Across States

California isn't the only state facing insurance challenges. Regions prone to hurricanes, floods, and other calamities are also feeling the pressure. Florida and Louisiana, for instance, are witnessing insurance giants reduce their footprints. The ripple effect of these withdrawals is striking. As mainstream insurers pull back, state-backed entities are increasingly burdened, often without the capacity to manage the rising risks effectively.

A Catch-22 Situation

"The same risks that are making insurance more important are making it harder to get," said Carolyn Kousky from the Environmental Defense Fund. 

Insurers are caught in a bind; if they price policies in sync with escalating climate risks, they might soon be unaffordable for a majority. In Florida, a glaring example has emerged with home insurance premiums tripling over a span of just five years.

Diverse Reactions to a Shared Crisis

While some homeowners view the changing insurance backdrop as mere noise and continue  their lives in high-risk areas, many others are taking note. The split response is evident in migration patterns, property purchase decisions, and individual narratives. A Florida resident eloquently summed up the prevailing sentiment for many: "It's like being on the Titanic."


The intersection of climate change and home insurance in the U.S. is teetering on the edge. The decisions made now, both at the policy and individual levels, will determine the fate of the American dream for millions.



Business Insider

Dan Nicholson is the author of “Rigging the Game: How to Achieve Financial Certainty, Navigate Risk and Make Money on Your Own Terms,” deemed a best-seller by USA Today and The Wall Street Journal. In addition to founding the award-winning accounting and financial consulting firm Nth Degree CPAs, Dan has created and run multiple small businesses, including Certainty U and the Certified Certainty Advisor program.

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