'Uninsurable' America? Let's set the record straight

Earlier this year, several large carriers announced they would no longer write new home insurance policies in California because of climate risk. Other major insurers are also containing growth, not renewing policies, and excluding wind and hail damage from their policies in certain areas of Florida and Louisiana, among other high-risk states. 

For many Americans, this prompts the looming question: Are we just one big weather event away from losing our insurance? Is our region or even our country going to become uninsurable, as some media outlets suggest?

The answer is a resounding no. America isn’t uninsurable. Instead, our country faces a perfect storm for homeowners seeking coverage. The storm was created by several factors, including legacy insurers’ failure to innovate, state regulations, shifting population centers, increased property values, and, of course, extreme weather caused by climate change. The irony is that the same risks that are making insurance more important are also making it harder to get.

Gorilla in the room

For consumers, the most obvious factor is the changing climate. Weather events are becoming increasingly volatile, with more frequent and severe storms, wildfires, and other natural disasters. This pattern expands the risk to insurers and makes it more costly for them to acquire reinsurance coverage, which is required insurance for insurers so they can meet their obligations to customers.

Compounding the problem is that Americans are overwhelmingly moving to metropolitan areas in the South and West, which have always been susceptible to extreme weather. In 2022, the states that attracted the most new residents were Florida and Texas. As the populations in these riskier areas continue to grow, so do the expected insurance losses which, in turn, increases costs for insurers and consumers alike. 

On top of all that, insurers have been operating in challenging regulatory environments. Until key reforms were passed last year, Florida saw inflated claims and frivolous lawsuits destabilize its property insurance market. In California, regulators didn’t let insurers consider current or future risks when deciding how much to charge for an insurance policy. That policy recently changed after the majority of insurers operating in California paused or restricted new business in the state. 

However, the insurance industry is not without blame. Legacy insurers also played a big role in creating this mess. These companies still operate a traditional broker model, complete with costly storefronts and inefficient interactions between agents and carriers. For every $100 legacy insurers collect in premiums, almost 20% is spent on their network of agents. That money could be better spent on cost savings passed onto the consumer and upgrading the insurer’s risk assessment technologies.

Speaking of technology…

Legacy insurers have been using very crude tools that only look backward, but historic losses don’t fully account for growing risks from climate change. With tools like forward-looking weather models and AI-powered analysis, insurers need to leverage granular data to get more accurate readings on how resilient individual properties will be to extreme weather. That approach, used by our company and our peers at SageSure and Palomar, incentivizes consumers to adapt their homes proactively. This further protects them from harm and helps to reduce the overall cost of homeowners insurance for everyone.

To be sure, homeowners insurance rates will continue to rise as property values keep climbing and the risks of climate change intensify. While homeowners should anticipate higher insurance rates in the future, it’s important to understand that these price increases historically ebb and flow. From 2007 to 2017, insurance rates stayed largely flat as investors poured money into reinsurance.

Even though prices will continue to increase, it’s inaccurate and sensationalizing to call America “uninsurable.” If that were the case, we wouldn’t be operating in Florida and other high-risk states. The rest of the insurance industry must keep pace with what Americans need by embracing technology and new models to serve their customers while continuing to work with regulators to improve public policy. Although the landscape of insurability is changing, the industry’s commitment to protecting homeowners must remain steady. Together, we can weather any storm.

Sean Harper (sean@kin.com) is the CEO and co-founder of Kin Insurance. He previously founded FeeFighters, a payments company bought by Groupon, and TSS-Radio, an eCommerce firm that became an Inc. 500 fastest-growing company.

Also by this contributor: Climate change is measurable — and manageable