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Weeks after wildfires burned more than 16,000 homes and buildings around Los Angeles this winter, Federal Reserve Chair Jerome Powell offered Congress a grim view of America's insurance markets.
Premiums across the U.S. have jumped 24% on average in the past few years, according to the Consumer Federation of America, in part because climate change is driving more intense storms, floods and wildfires. Insurers and banks have already retreated from some of the riskiest parts of the U.S., Powell told lawmakers, like coastal communities and areas prone to blazes, including parts of California.
"If you fast-forward 10 or 15 years," Powell said, "there are going to be regions of the country where you can't get a mortgage."
The consequences of that kind of meltdown would be profound. People need insurance to get a mortgage to buy a house. If people can't get mortgages, property values fall. That strains local governments, which depend on property taxes — linked to home values — to fund public services like police and firefighters. As insurers drop customers in high-risk areas, a lot of Americans have been pushed onto expensive state-run plans with limited coverage. That means homeowners who lose insurance often struggle after disasters to rebuild or move.
"Everything has a price," says Ben Keys, a real estate and finance professor at the Wharton School at the University of Pennsylvania. "And so, it's not that areas become uninhabitable. It's that it's so wildly unaffordable to find insurance that only the very wealthiest people could afford to live there — to bear those kinds of risks themselves."
For insurers, the bill for disasters keeps growing. One way to lower the cost is for homeowners and communities to better protect themselves from storms and fires by investing in things like fortified roofs and by thinning forest vegetation. That kind of work has already started. However, insurers rarely consider what has been done to make a property more resilient when deciding to offer or renew coverage, says Dave Jones, California's former insurance commissioner and the director of the Climate Risk Initiative at the Center for Law, Energy & the Environment at UC Berkeley Law.
"Insurance is the climate canary in the coal mine, and the canary is gasping for breath right now," Jones says. Investments that help communities endure more extreme weather are "a path to keep insurance available," he says. "But the insurers need to account for it in their modeling. They're not."
Here's what you need to know about the state of America's shaky insurance markets and what's being done to try to fix them.
How did the problem start?
At its core, this is about the cost of disasters.
The amount of money insurers have paid out when extreme weather damages or destroys property has grown by between 5% and 7% annually in recent years, according to Swiss Re, a major reinsurer, which essentially sells insurance to insurance companies. If that trend holds, the industry will face close to $145 billion of insured losses globally in 2025, Swiss Re said in an April report. The Los Angeles wildfires alone inflicted around $40 billion of insured losses, the firm said.
Disaster costs are rising for several reasons. People continue to move to coastal regions vulnerable to hurricanes and to forested areas prone to wildfires. That means more property is in harm's way. When homes get damaged or destroyed, inflation has made it more expensive to rebuild. All the while, the rising temperatures that fuel more extreme weather are caused primarily by burning fossil fuels that insurance companies themselves continue to underwrite and invest in.
Insurers have responded by increasing their prices to reflect the growing risks. That has raised insurance costs for homeowners and would-be homebuyers across the United States. In some places, including parts of California, Florida and North Carolina, insurers have gone further, dropping customers to shield themselves from ballooning losses.
Almost 2 million Americans had their home insurance policies dropped between 2018 and 2023, with the biggest impact in places at highest risk of disasters, according to Keys, of the University of Pennsylvania.
"We have an insurance-availability challenge that we're facing in some states, as well as growing affordability concerns," says Karen Collins, a vice president at the American Property Casualty Insurance Association, an industry group.
Insurance experts, industry representatives and consumer advocates interviewed by NPR largely agree that to shore up insurance markets, homes and communities have to become more resilient. That means they have to be located and built to better survive the extreme weather being amped up by climate change. But there's deep disagreement about how that should happen.
Who's responsible for making homes and communities more resilient?
Consumer and industry advocates say everyone bears responsibility to make housing more resilient: homeowners and communities, insurers, and local, state and federal lawmakers. But getting the different players to agree and take action gets tricky.
Sen. Thom Tillis, a North Carolina Republican, vented at a May Senate hearing on home insurance that everyone talks about protecting communities when disasters happen, but then the issue is forgotten until the next catastrophe.
"We've got to stop talking about resiliency and then you go home, you get political pushback, you don't do it," Tillis said. "We need local and state officials to have the courage to tell their communities what they need to do to be more resilient. And the federal government needs to reward those who will, and deny funding for those who don't."
Alex Epstein, a fossil fuel advocate at the same hearing, offered a different view: Preparing for disasters should be the homeowner's responsibility. And insurers should charge whatever they think is appropriate. The idea, Epstein said, is that if premiums skyrocket, it signals to the public where it's safe to live and what people need to do to protect themselves.
"You just need to allow total freedom of insurance markets to act in response to risk," Epstein said.
But just letting insurers raise prices for something most Americans have to purchase for homeownership isn't a solution, says Douglas Heller, insurance director at the Consumer Federation of America.
"You can't require people to buy something and then make it impossible for them to afford it," Heller says.
What's happening on the ground?
As disaster costs and insurance premiums have risen, Heller says, a lot of homeowners and communities have tried to do their part by making their properties more resilient. The problem, he says, is that insurers do little to account for those efforts.
Industry-funded grants are available in Alabama to help pay for fortified roofs. And homeowners in a number of states can qualify for insurance discounts if they protect their property from disaster. But the savings are often small, says the University of Pennsylvania's Keys. And if insurers don't consider what homeowners have done to protect their property when they're deciding whether to write or renew coverage, "the discount doesn't help you," says Jones, of UC Berkeley Law.
Among the places hardest hit by insurance market turmoil is Lake County, California. Located about 130 miles north of San Francisco, more than 5% of the area's housing stock has burned in wildfires in the past decade, Jessica Pyska, a county supervisor, said at the May Senate hearing on insurance markets. The loss of more than 2,000 homes has been especially devastating in a county where residents are older and poorer than the national average. Still, Lake County has managed to become "a model for disaster mitigation and community preparedness," Pyska told lawmakers.
Homeowners have installed fire-resistant roofs and noncombustible siding. Pyska said vegetation has also been cleared to create what's called defensible space around homes and fuel breaks to protect critical infrastructure.
But despite those efforts, "we continue to be crushed by the insurance crisis plaguing our nation," Pyska said at the hearing. Insurance options in Lake County keep dwindling — the area had one of the country's highest rates of insurance nonrenewal in 2023. And residents who can find coverage have seen premiums double or triple, she said. As a result, new housing development has stalled, and more homes sit vacant because buyers can't get insurance.
"We are doing as much as we can right now," Pyska said, "and everything is on the line."
Is anyone trying to help communities like Lake County?
That's exactly what a group of homeowners, insurance experts and environmentalists is trying to do in the forest of Northern California.
In the Sierra Nevada, a homeowners association called Tahoe Donner said this year that it had convinced an insurer to provide coverage that accounts for the community's efforts to reduce threats from wildfires, including by thinning trees and conducting prescribed burns.
"We convinced an insurer, based on our demonstration that forest management reduces risk, to write insurance in an area in the middle of the forest where other insurers are not writing," says Jones of UC Berkeley Law, who owns property in Tahoe Donner.
But it's just a first step. The policy covers only the association's forested and recreational land — not homes — and it's still "incredibly challenging" for residents there to get insurance, says Annie Rosenfeld, Tahoe Donner's general manager.
However, Rosenfeld says the policy should serve as a test case for the home insurance industry.
"For [insurers], they need to have some assurance that not only you've hardened your home, but the community has done that larger, broad-scale risk mitigation — [and] that we can quantify it," says Jason Hajduk-Dorworth, Tahoe Donner's director of administrative services and a former fire chief in Santa Cruz, California.
If insurers refuse to account for those kinds of initiatives, then Jones says state lawmakers should force the issue. He pointed to a law that Colorado Gov. Jared Polis signed in May requiring insurers that use risk models to consider actions that homeowners and communities take to protect themselves — including home hardening and forest management — when they assess the risk that a property will burn in a wildfire.
What do insurers say?
Collins, of the American Property Casualty Insurance Association, disputes that insurers ignore investments that homeowners and communities are making to protect themselves.
Battered by surging costs, insurers have been regrouping, Collins says, limiting how much coverage they can provide in certain markets.
"It's not a matter of [investments in resilience] not being recognized," Collins says. "It's a matter of each company is in a different place with what their capacity is to lean into the market."
Once insurers are in a position again to grow their business in those areas, "you better believe that they're going to be looking at what are the most attractive risks," Collins adds. "And if your home has been mitigated and shows clearly that it has taken steps to reduce the likelihood or extent of damage, it is going to be more attractive."
An industry-backed group working on resilience is the Insurance Institute for Business & Home Safety. Michael Newman, the group's general counsel, told Congress that when homeowners make verifiable, science-based investments to reduce risk, "insurers will pay attention."
But that's not translating into action, says Jones, of UC Berkeley Law. "The industry is well aware of the risk-reduction benefits of home hardening, defensible space and landscape-scale forest treatment," he says. "What's frustrating is that so far, except for what we've done with this insurance product [at Tahoe Donner], it's not being accounted for."
The question, then, is how to encourage more of those kinds of arrangements. Susan Crawford, a senior fellow in the Sustainability, Climate, and Geopolitics Program at the Carnegie Endowment for International Peace, doubts state legislation forcing the industry's hand will be effective.
Insurers have plenty of places to do business, Crawford says, and "it may not be in their interest to spend money to differentiate among communities that have invested in particular ways."
Ultimately, there would need to be a sort of grand bargain between the public and private sectors, she says. If states and localities strengthen building codes and land-use policies, for example, insurers could help obtain government grant funding to aid lower-income homeowners in making the necessary upgrades to their property. Then, Crawford says, insurers would be encouraged to offer more attractive coverage in that area.
So far, though, there haven't been enough incentives — or pressure — to hammer out that kind of deal. State and local officials face blowback when they call for measures that could make communities more resilient, because they often cost constituents money. Meanwhile, insurers don't think it's their job to push for building-code and land-use reform, Crawford says. And housing developers worry about changes that could drive up home prices and hurt demand.
Are there limits to how much communities and insurers can adapt to climate risks?
There are limits, according to Günther Thallinger, a board member at Allianz, a German financial company with a big insurance business. And those limits are approaching fast.
"The math breaks down: the premiums required exceed what people or companies can pay," Thallinger wrote in a March LinkedIn post that went viral in climate and insurance circles. As temperatures keep rising, "adaptation itself becomes economically unviable."
That leaves one option, Thallinger said: Reduce heat-trapping emissions by burning less fossil fuel or by capturing climate pollution before it's released into the atmosphere.
That same month, in an article in the journal Nature about soaring insurance costs, Scott St. George, head of weather and climate research at insurance broker Willis Towers Watson, also concluded that drastically cutting greenhouse gas emissions is essential.
Insurers talk a lot about raising premiums so they can return to risky areas and operate profitably, "and I feel like that overlooks the aspect of the problem that the issues will still be here next year and the year after that," St. George told NPR.
"I think we need to be up-front with ourselves and with the next generation," St. George said, "that this is a very hard problem to solve without getting to the root of things."
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