Home insurance covers unanticipated damages to a home or property. It ensures financial protection for homeowners in disastrous events like fires or vandalism and provides liability coverage for sustained injuries after accidents at home or on the property. However, most standard home insurance does not cover floods or earthquakes; coverage must be added to standard plans, as insurance companies have control over coverage areas and can select coverage types.
Home insurance is necessary to secure a mortgage and ensure the property is protected. However, as climate-related weather events have increased, insurance companies have raised prices and pulled out of natural disaster-prone areas.
Expanding Disaster Prone Areas
In recent years, homeowner insurance markets have struggled to maintain consistent pricing. In fact, between 2020 and 2023, insurance premiums increased by over 30 percent due to high construction and skilled labor costs, as well as climate change impacts. The number of inflation-adjusted billion-dollar disasters has considerably increased over the past two decades (Fig. 1). In 2022, 75 percent of insured losses of the property and casualty sector were associated with homeowners insurance complications.
Fig. 1: Congressional Budget Office, 2024
As indicated, these natural disasters have become more frequent and intense as a byproduct of climate change (Fig. 1), forcing insurers to spend more on disaster recovery. As a result, insurers have reduced coverage, raised premium prices, and withdrawn from high-risk markets.
Eaton California Fire Case Study
In January 2025, a series of destructive wildfires swept through Southern California. One of the largest fires in the state’s history, the Eaton Fire burned through more than 14,000 acres of land and caused the death of at least 17 people. Following this devastating event, homeowners faced debates with insurance companies and struggled to recover. Homeowners expressed frustration acquiring insurance claims for damages and faced delays with claim resolutions, a trend that continues as Californians face increased wildfires and intensity. California residents have found major insurance companies have pulled back from markets in the state because of increased losses (Fig. 2).
Fig. 2: Home Insurance Renewal Rates
Building More Resilient Infrastructure
A common solution pushes investment in climate-resilient infrastructure. Updating building codes in alignment with the Federal Emergency Management Agency’s (FEMA) standards has been demonstrated to reduce weather damage. For example, a home built according to 2022 building standards experiences an 84 percent reduction in annual wind damage compared to homes built before 1900, due to structural improvements mitigating damages.
However, while adapting to weather events through structural upgrades can be a useful way to potentially reduce damage, it does not necessarily provide a long-term solution to the insurance crisis. As climate change fuels unpredictable weather patterns, it will be difficult to keep pace with the demand for better infrastructure, and insurance rates may still increase.
Federal Coverage for Disaster-Prone Areas
Many state governments have introduced insurance policies that offer coverage for homeowners in high-risk areas to cover private insurance gaps. These Fair Access to Insurance Requirements (FAIR) plans can supplement losses not covered by standard, private insurance premiums. These programs typically rely on funding from several sources, including private insurance companies, premiums, and assessments. However, FAIR plans are last resort options in which homeowners must prove they are unable to secure insurance from private companies. This program provides a small safety net of protection for homeowners who live in high-risk areas. In California, the FAIR plan only makes up about 3.7 percent of the residential market, but it has steadily increased since 2015 (Fig. 3). Currently, FAIR plans offer coverage in 34 states, including Washington, D.C.
Fig. 3: California Department of Insurance, 2025
While FAIR plans will likely expand coverage for high-risk homeowners, there are several gaps in such programs. They typically cover less than a standard insurance plan for a higher cost and damages can exceed FAIR plan shared funds. Recently, homeowners have also grown increasingly dissatisfied with the FAIR plan because of continuous case delays and denials. Following the Eaton Fire in California, a homeowner filed a lawsuit against the California FAIR Plan Association over its handling of their insurance claim. The homeowner filed a claim on January 12th and, on April 13th, received a letter that the claim was denied. The delayed process and denied coverage caused residents significant frustration with the FAIR plan and its inability to protect their policyholders.
As climate risks will only intensify in the next decades, ways to mitigate limitations must be explored to mitigate financial vulnerability for homeowners.