Insurers Bleed Cash From Climate Shocks, Homeowners Lose

At first glance, Dave Langston’s predicament seems similar to headaches facing homeowners in coastal states vulnerable to catastrophic hurricanes: As disasters have become more frequent and severe, his insurance company has been losing money. Then, it canceled his coverage and left the state.

But Mr. Langston lives in Iowa.

Relatively consistent weather once made Iowa a good bet for insurance companies. But now, as a warming planet makes events like hail and wind storms worse, insurers are fleeing.

Mr. Langston spent months trying to find another company to insure the townhouses, on a quiet cul-de-sac at the edge of Cedar Rapids, that belong to members of his homeowners association. Without coverage, “if we were to have damage that hit all 17 units, we’re looking at bankruptcy for all of us,” he said.

The insurance turmoil caused by climate change — which had been concentrated in Florida, California and Louisiana — is fast becoming a contagion, spreading to states like Iowa, Arkansas, Ohio, Utah and Washington. Even in the Northeast, where homeowners insurance was still generally profitable last year, the trends are worsening.

In 2023, insurers lost money on homeowners coverage in 18 states, more than a third of the country, according to a New York Times analysis of newly available financial data. That’s up from 12 states five years ago, and eight states in 2013. The result is that insurance companies are raising premiums by as much as 50 percent or more, cutting back on coverage or leaving entire states altogether. Nationally, over the last decade, insurers paid out more in claims than they received in premiums, according to the ratings firm Moody’s, and those losses are increasing.

The growing tumult is affecting people whose homes have never been damaged and who have dutifully paid their premiums, year after year. Cancellation notices have left them scrambling to find coverage to protect what is often their single biggest investment. As a last resort, many are ending up in high-risk insurance pools created by states that are backed by the public and offer less coverage than standard policies. By and large, state regulators lack strategies to restore stability to the market.

Where Insurers Are Losing Money

“I believe we’re marching toward an uninsurable future” in many places, said Dave Jones, the former insurance commissioner of California and now director of the Climate Risk Initiative at the University of California Berkeley law school.

Insurers are still turning a profit from other lines of business, like commercial and life insurance policies. But many are dropping homeowners coverage because of losses.

Tracking the shifting insurance market is complicated by the fact it is not regulated by the federal government; attempts by the Treasury Department to simply gather data have been rebuffed by some state regulators. To understand what’s happening in the insurance industry, The New York Times interviewed more than 40 insurance executives, brokers, officials and homeowners in a dozen states, and also reviewed financial records from insurers in all 50 states going back more than a decade.

The turmoil in insurance markets is a flashing red light for an American economy that is built on real property. Without insurance, banks won’t issue a mortgage; without a mortgage, most people can’t buy a home. With fewer buyers, real estate values are likely to decline, along with property tax revenues, leaving communities with less money for schools, police and other basic services.

And without sufficient insurance, people struggle to rebuild after disasters. Last year, storms, wildfires and other disasters pushed 2.5 million American adults out of their homes, according to census data, including at least 830,000 people who were displaced for six months or longer.

Severe Storms Increasingly Dominate Insured Losses in the U.S.

Changing weather patterns are making wind and hail storms more frequent and severe.

Note: “Other” hazards include drought, winter weather and earthquakes.

“Insurance is where many people are feeling the economic impacts of climate change first,” said Carolyn Kousky, associate vice president for economics and policy at the Environmental Defense Fund. “That is going to spill over into housing markets, mortgage markets, and local economies.”

Several factors are helping to drive the losses in homeowners insurance, including the rising cost of labor and materials to rebuild homes, outdated building codes, and the fact that Americans keep moving to areas that are at high risk of flooding or wildfire.

The industry has seen sustained losses before, including between 2008 and 2012. But experts say the past decade is different because of climate change. As the planet warms and storms and fires grow more intense, the cost of disasters is increasing faster than insurers can afford. A financial model designed for a mix of good and bad years threatens to unravel as more years become bad years.

“It’s becoming an untenable situation,” said Sridhar Manyem, senior director of industry research at AM Best, a company that rates the financial strength of insurers.

Highest-Cost Hazards by State Since 2000

In the Midwest, wind and hail storms have become more damaging.

(see original article for the lookup tool.)

Source: NOAA Billion-Dollar Weather and Climate Disasters

Note: Map reflects both insured and uninsured losses. “Other” category includes flooding, drought and winter storms.

Essentially, insurance companies make bets and set premiums based on damages they expect from historical weather patterns. But global warming has made weather unpredictable, leaving insurers unsure how to price policies.

“Climate change is real,” said Bill Montgomery, chief executive of Celina Insurance Group, one of the companies that has left Iowa in the past year. “We can’t raise rates fast enough or high enough.”

Secura Insurance used to sell homeowners coverage in Iowa and nine other states. On Feb. 1, the company began dropping all its homeowners outside its home state of Wisconsin. Next year, it plans to start dropping its customers there, too.

The decision was driven largely by increasingly erratic weather, said Kristin Heiges, a spokeswoman for Secura. “The volatility has been all over the place,” she said.

Homeowners are stunned.

“Instead of doing what they’re supposed to do, which is serve their customers, they are cutting them loose by the droves,” said Eldon Neighbor, an independent insurance agent in eastern Iowa, who lost his own home insurance last year when his carrier left the state. In Iowa, insurers faced $1.3 billion in losses last year, an enormous sum for a state with just three million residents and a fourfold increase from a decade earlier.

Those who can’t get insurance on the private market are flooding into state-mandated insurance pools of last resort, whose losses are ultimately borne by the public. Federal officials increasingly worry that states will eventually turn to Congress for assistance, putting all Americans on the hook.

Even the insurance companies are having trouble getting coverage. Reinsurance companies, global giants like Swiss Re, insure the insurers, sharing some of the risk of the policies they write. As disasters worsen, reinsurers have become more reluctant to underwrite insurance in parts of the United States. That’s made insurance companies even more conservative about where to do business.

Iowa demonstrates what happens when all these trends converge.

The state’s favorable insurance market began to unravel in 2020, said Tom O’Meara, chief executive officer of the group that represents the state’s independent insurance agents.

Clean-up efforts in Marshalltown days after a 2018 tornado.

Kelsey Kremer/The Des Moines Register, via Associated Press

Years after a spate of destructive weather, many homes in Marshalltown are still damaged.

That year, a derecho, a storm marked by intense winds, tore through the Midwest. It was followed by a string of disasters: wind storms, hail and tornadoes, making it hard for insurers to recover.

To gauge the level of financial distress hitting insurance companies in Iowa and elsewhere, The New York Times assembled data from AM Best, a company that rates the financial strength of insurers, showing “direct combined ratios,” a number that compares revenues to costs. AM Best calls it “a true measure” of insurers’ profitability.

In 2023, for every dollar insurers earned from homeowners policies in Iowa, they paid out $1.44 in losses and other costs. It was the fourth straight year of losses for Iowa’s home insurance market. Reinsurers started to back away.

“Insurance is based on optimism,” said Doug Ommen, Iowa’s insurance commissioner. “You can’t sustain a severe loss every year.”

Severe Storms Are Pushing Midwest Insurers Underwater

Once seen as a haven from climate shocks, the region has suffered growing insurance losses.

(see original article for the lookup tool.)

Since the start of last year, at least four companies have announced they would stop writing homeowners insurance in Iowa, including Secura, Celina and Pekin Insurance.

Some homeowners lost coverage while still recovering from disasters.

Hail damaged the roof of Dr. Brandi Mace Storm’s home near Des Moines last year. After months of haggling, her insurance company, Pekin, sent a check to cover the repairs. Before she could get the repairs done, Pekin dropped her, along with all of its 40,000 homeowners insurance customers in Iowa.

Trying to find a new company to insure a house with a damaged roof was a challenge, said Dr. Mace Storm, a dentist.

Severe weather combined with the rising costs of rebuilding is “making it unprofitable for us to successfully operate in that state,” said Susan Crisler, a spokeswoman for Pekin.

Others have been hit with sharp increases in their premiums. Tim Kuehner, a general contractor whose home just outside of Marshalltown was also damaged in the 2020 derecho, saw his annual premium jump to $9,189 this year from $6,453, a 42 percent increase.

In neighboring Minnesota, the home insurance industry has lost money in six of the last seven years, and those losses are growing. Insurers there are also pulling back, according to Tony J. Larson, senior vice president of personal lines coverage at Christensen Group Insurance, a brokerage.

Since last summer, 10 of the 25 insurers he works with that traditionally offer homeowners coverage, including Travelers and Nationwide, “have halted or made it near-impossible to place a new homeowners policy,” he said.