As climate change gets worse, the immediate effects are becoming painfully obvious: More frequent and severe storms, wildfires, hurricanes and other types of extreme weather are wreaking havoc and pushing millions of Americans out of their homes each year.
Less obvious, but arguably even more important, are the consequences of those disasters, which are threatening the foundations of modern American life even for people who aren’t affected directly by extreme weather. One of the best and most recent examples is the insurance market. Insurers are spending more to fix damaged homes as disasters intensify. In response, they’re raising rates, squeezing homeowners already struggling with rising mortgage costs, and even abandoning some markets altogether. (Read our full story here.)
(Are you having trouble with your homeowners insurance? Tell us.)
The health of the home insurance market is inextricably tied to the health of the broader economy. A broad downturn in the insurance industry could spill over into real estate values and hurt local tax revenue.
And that scenario might not be as far-fetched as it seems. “I believe we’re marching toward an uninsurable future” in many places, Dave Jones, the former insurance commissioner of California and now director of the Climate Risk Initiative at the University of California Berkeley law school, told me.
My colleague Mira Rojanasakul and I set out to learn how widespread the tumult in the insurance industry has become. We spent months talking to those who track the financial health of insurers, including companies like AM Best, a rating agency that focuses on the industry. We also spoke with state insurance commissioners, insurance executives, academics and homeowners themselves.
We found an industry facing a level of disruption that is far greater than most people know. Here are the biggest takeaways from our investigation.
Climate change is upending the insurance market
Until recently, only widespread damage from hurricanes and earthquakes had the potential to put insurers out of business and overwhelm their ability to pay claims. That’s a big reason insurers have found it so hard to make money in Florida, which is more exposed to hurricanes than any other state.
But in the past few years, previously small-scale threats like wildfires, hail and windstorms have become more intense and frequent. That means the threat to insurers has grown as well. In Iowa, a number of insurers have stopped writing homeowners insurance since the start of last year, dropping tens of thousands of customers. Insurance agents say it’s getting harder to find companies that will write new business.
The same is true across the Midwest, in much of the Southeast, and in parts of the West. We found that the insurance industry lost money on homeowners coverage in 18 states last year, a list that includes Kentucky, Michigan, Utah, Illinois, Georgia, Arkansas and Washington . (You can learn about the health of the homeowners insurance market in your state here.)
Insurers are pulling back coverage in surprising places
Insurers made headlines last year for pulling out of California. But states across the Midwest — including Iowa, Minnesota, Indiana and Ohio — have also seen insurance companies stop writing homeowners insurance, or making it much harder to qualify for coverage, according to insurance agents there. They’re also raising rates by 50 percent or more in some places.
Tim Kuehner, a general contractor whose home just outside of Marshalltown, Iowa, was damaged in the 2020 derecho storm, saw his annual premium jump to $9,189 this year from $6,453, a 42 percent increase. His insurance agent, Bobby Shomo, told me that many of his clients are facing similarly large increases.
Across much of the Southeast, insurers are also raising rates, dropping customers or both. The challenge facing the homeowners insurance market in Arkansas “is probably unparalleled in recent decades,” said Kelley Erstine, president of the association that represents independent insurance agents in Arkansas.
In the West, agents say insurers have become less willing to write insurance in areas at high risk from wildfires. That includes communities around Salt Lake City and other parts of Utah; parts of Washington, including towns near Seattle; and wooded parts of Arizona north and east of Phoenix. “Pretty much none of the carriers will write there,” said Matthew Baker, a risk adviser with Strong Tower, an insurance agency in Gilbert, Ariz.
The consequences of that pullback could affect the broader economy
A breakdown in homeowners insurance doesn’t just affect people who struggle to get coverage. Without insurance, banks won’t issue a mortgage; without a mortgage, most people can’t buy a home. Fewer prospective buyers can push home values down, which means less property tax revenue and less money for local government services.
“What happens in the insurance market generally spills into the housing and mortgage markets,” said Carolyn Kousky, associate vice president for economics and policy at the Environmental Defense Fund.
Another spillover effect is what happens after a disaster. People who are underinsured or uninsured will generally have a harder time repairing or rebuilding their homes, Dr. Kousky said. And empty homes don’t just mean the people who lived in those homes are suffering; they also mean less money going into the local economy.
States are intervening in different ways
State officials agree the trends aren’t good. They don’t agree on how to respond.
Some states like Louisiana and Washington, are trying to make it easier for insurers to raise premiums. The argument is that if insurers can make a profit, they’ll be less likely to pull back on coverage or leave the state entirely.
Other states — including California, Minnesota and Georgia — are trying to reduce the losses insurers face by encouraging homeowners to make their properties more resilient, say, by investing in stronger roofs. To get homeowners to make those changes, those states have required insurers to offer discounts for homes that meet certain standards.
Colorado, anticipating that insurers might start pulling back coverage after years of losses, is setting up a high-risk pool for homeowners who can’t get coverage on the private market. Florida is moving in the opposite direction: Its high-risk pool, called Citizens Property Insurance Corporation, now covers more homes than any private insurer, so the state is trying to push people off the plan.
The question facing insurance companies around the country, and the homeowners who rely on them, is which state might be heading in the same direction as Florida.
The answer from our reporting: It could be any of them.
What to know about new rules to overhaul America’s electric grid
Federal regulators on Monday approved sweeping changes to how America’s electric grids are planned and funded, in a move that supporters hope could spur thousands of miles of new high-voltage power lines and make it easier to add more wind and solar energy.
The new rule by the Federal Energy Regulatory Commission, which oversees interstate electricity transmission, is the most significant attempt in years to upgrade and expand the country’s creaking electricity network.
What the new rules say: The new federal rule, which was two years in the making, requires grid operators around the country to identify needs 20 years into the future, taking into account factors like changes in the energy mix, the growing number of states that require wind and solar power and the risks of extreme weather.
Grid planners would have to evaluate the benefits of new transmission lines, such as whether they would lower electricity costs or reduce the risk of blackouts, and develop methods for splitting the costs of those lines among customers and businesses.
Why they matter: A big reason for the slow pace of grid expansion is that operators rarely plan for the long term, the federal commission said. When it comes to building new transmission lines, grid operators tend to be reactive, responding after a wind-farm developer asks to connect to the existing network or once a reliability problem is spotted.
The opposition: The question of who pays for those grid expansions has sparked furious debate. Officials in states that are less enthusiastic about wind and solar power, like Kentucky or West Virginia, say they could be forced to foot the bill for new multibillion-dollar transmission lines meant to help states like New Jersey or Illinois fulfill their renewable energy ambitions. The commission could still face legal challenges from states concerned about higher costs.
Read the full article about the new rules here, by Brad Plumer.
Bonus: Lisa Friedman explains why the Federal Energy Regulatory Commission may be the most important climate agency you’ve never heard of.