More Americans Miss Payments and Lose Home Insurance

Homeowners in regions most exposed to climate disasters are increasingly forgoing paying their insurance premiums, exposing them to financial ruin, according to sweeping new government data.

The numbers show how climate change is eroding the foundation of American life by making homeowners insurance more expensive and harder to maintain, even as wildfires, hurricanes and other calamities increasingly threaten what is, for many people, their most valuable asset.

Source: National Association of Insurance Commissioners and Federal Insurance Office, United States Department of the Treasury.

“Home insurance is where many Americans are now feeling the financial effects of climate change directly, in their wallets,” said Ethan Zindler, a climate advisor at the Treasury Department. “Nature doesn’t really care whether people live in a blue state or a red state or any other state, or whether or not you believe in climate change.”

The rise in cancellation rates is part of a broader trend captured by the Treasury Department, which analyzed information on 246 million insurance policies issued by 330 insurers nationwide between 2018 and 2022. The The result is the most comprehensive examination to date of the effect of climate change on the U.S. homeowners insurance market.

Homeowners with a mortgage are generally required by lenders to carry insurance. But people who own a home outright, perhaps because the property has been in a family for decades or generations, have the option of opting out of their insurance.

The cost and frequency of insurance claims are rising rapidly in the highest-risk areas of the United States, as defined by the Federal Emergency Management Agency, figures show. They show that the financial pressure on insurers is also increasing.

The same goes for the cost of insurance, which has increased much more in high-risk areas than elsewhere.

As these trends worsen, more and more people are being left out of their insurance plans. This happens in two ways. The first is cancellations, when insurers abandon owners who do not pay their premiums. Another solution is non-renewal, in which insurers refuse to renew the policies of homeowners who wish to continue paying for their coverage.

Cancellation and non-renewal rates are increasing, and these increases are more pronounced in high-risk areas.

Sources: National Association of Insurance Commissioners and Federal Insurance Office, United States Department of the Treasury; FEMA.

In more than 150 ZIP codes across the country, insurers canceled at least 10% of home insurance policies in 2022, the most recent year for which figures are available, because homeowners failed to pay their bonuses, according to the data. Cancellation rates were highest in coastal areas of the Carolinas, including Hilton Head, Charleston and Myrtle Beach, which are particularly prone to hurricanes. They were also raised in parts of West Virginia, Arizona, and California.

The data does not provide insight into why owners chose to stop paying. But Nellie Liang, undersecretary for domestic finance at the Treasury Department, said her team sees this as an indicator of families facing increasing financial stress made worse by climate change.

“Households are not able to bear the burden on their own,” Ms Liang said.

As for cases where insurance companies refused to renew policies, even for their paying customers, these non-renewal rates were also higher and increased more quickly in high-risk areas. The ZIP codes with the highest share of non-renewals in 2022 were in coastal South Carolina as well as parts of California, including Sonoma and Yuba counties, which were hit by wildfires of forest. Areas of Tennessee that experienced severe storms also experienced high non-renewal rates.

The destabilization of the home insurance market isn’t just hurting homeowners, Ms. Liang said. It also threatens the property tax revenue that communities depend on, since tax revenue can decline if homeowners cannot rebuild or if homes lose value. It also hurts local businesses that rely on the owners as customers.

“There are many reasons to be concerned,” Ms Liang said.

The Treasury Department’s efforts to collect data have been complicated by political clashes over climate change, as well as who should regulate insurance companies.

The department announced this effort in 2021 as part of the Biden administration’s efforts to address the financial effects of climate change. His initial plan was to collect data directly from insurance companies. But some state insurance commissioners (who regulate the industry) opposed it, supported by congressional Republicans.

So the Treasury Department let state commissioners gather the data. Or don’t put it together: Seven states – Florida, Alabama, Louisiana, Georgia, Indiana, Montana and North Dakota – declined to participate. According to the Treasury Department, this meant that local insurance companies headquartered in those states did not provide data. But national insurers continue to provide data on the homeowners they cover in those states. (Another exception was Texas, where they did not provide some data.)

Additionally, participating states chose to withhold certain important information, including data from their state-mandated high-risk insurance plans. These plans, designed to provide insurance to people who cannot buy it from traditional insurance companies, are becoming increasingly important as climate change worsens. Excluding these plans means the data does not capture the experience of many homeowners facing the highest risks from climate threats.

And of the data collected, the National Association of Insurance Commissioners, which represents state commissioners and compiled the data from them, shared only some of it with the Treasury Department.

The association did not immediately respond to a request for comment.

The Treasury Department, as part of its report, called on state commissioners and the national association to continue working with the agency’s Federal Insurance Office to collect and publish the data annually, and even to expand this effort by including information on high-risk pools.

The chances of this happening are unclear. Last month, Republican insurance commissioners wrote to Elon Musk and Vivek Ramaswamy, the leaders of what President-elect Donald J. Trump called his new Department of Government Efficiency, urging them to eliminate the office altogether. federal insurance.

They argued that the Bureau’s data collection work on climate change showed that the federal government was attempting to overstep its authority and that by releasing new data, the Bureau “chose to proceed with faulty information, which which risks misleading the public. .” The commissioners did not explain why they considered the information to be erroneous.

Methodology

Seven state insurance departments did not participate in the Treasury Department’s data collection: Alabama, Florida, Georgia, Indiana, Louisiana, Montana and North Dakota. In some cases, national insurers that provide coverage in these markets have submitted data for these states. Texas insurer data provided by the National Association of Insurance Commissioners did not include cancellations or nonrenewals for nonpayment.

Risk categories are based on the FEMA National Risk Index composite risk score. Contract termination and non-renewal rates represent an average within each risk category.