Insurance companies in parts of the U.S. have been struggling for years due to escalating natural disasters. Wildfires, floods, and intense storms have forced major insurers like State Farm and Allstate to severely limit new home policies in states such as Texas, Florida, and California, leaving homeowners with fewer options and exposing these states to financial instability.

In August 2024, insurance credit rating agency AM Best reported that U.S. home insurers lost $15.2 billion in 2023—more than double the losses from 2022. This marked the sixth year of losses in the past seven.

Since 2017, the increase in extreme heat and violent storms has directly correlated with rising insurance losses. 2024 is projected to be even worse, with hundreds of wildfires already recorded and a severe hurricane season anticipated.

The financial impact will first hit the insurance market, but state finances and municipal markets are also at risk.

Florida’s Insurance Crisis: A Ticking Time Bomb

Florida’s property insurance market—both commercial and residential—is in dire straits. Insurers have been leaving the state for years, and those that remain are underfunded, with no way to cover the costs of a major hurricane striking a large city. While much of this discussion focuses on Florida, similar challenges are unfolding across the U.S. and globally.

Citizens Property Insurance, a state-run insurer founded in 2002 under Governor Jeb Bush, was created to provide coverage to homeowners who couldn’t find insurance in the private market. As risk levels skyrocketed, insurance costs became unaffordable, forcing Citizens Property to absorb that risk—ultimately passing it on to Florida taxpayers.

If a catastrophic hurricane were to deplete Citizens Property’s reserves, all property insurance holders in Florida would be assessed a flat fee, regardless of income. According to a recent Environmental Law Institute (ELI) webinar, a major hurricane in Miami could result in a $60,000 per-homeowner assessment across the state.

The Rise of FAIR Plans: An Uncertain Safety Net

Similar Fair Access to Insurance Requirements (FAIR) plans now exist in 36 states, though many remain financially unsound. In 21 states, it’s unclear where funding would come from in the event of overwhelming claims. Many experts anticipate that states will turn to the federal government for relief, forcing taxpayers nationwide to subsidize uninsured risk.

A $60,000 assessment would bankrupt many Florida homeowners, and public support for bailing out high-risk coastal properties is likely to be weak. As climate change accelerates property disasters, the resulting financial strain could become a national crisis. Senator Sheldon Whitehouse has requested data from Florida to evaluate the state’s insurance outlook, with 35 other states also facing scrutiny.

What Can Homeowners Do If Their Policy Is Dropped?

Unfortunately, options are limited. Insurers are required to provide advance notice—usually 30 to 60 days—before canceling a policy. During this period, homeowners can shop for a new policy, but those in high-risk areas may struggle to find coverage at all.

Many states offer FAIR plans, originally intended as temporary solutions for high-risk areas. However, these policies tend to be expensive, incomplete, and often fail to cover the full home value. They may also exclude coverage for non-natural disaster risks, forcing homeowners to purchase additional policies.

“Climate change is no longer just an environmental problem. It is a looming economic threat.”

For some, opting out of insurance (“going bare”) may seem like the only alternative. A 2023 study by the Insurance Information Institute and Munich RE found that 12% of U.S. homeowners are uninsured. However, this option is only viable for those who own their homes outright, as mortgage lenders require proof of insurance.

As of January 2025, California’s FAIR plan is on the brink of bankruptcy following devastating wildfires, underscoring the unsustainable state of property insurance in disaster-prone areas.