More Americans, Risking Ruin, Drop Their Home Insurance

Homeowners in places most exposed to climate disasters are increasingly giving up on paying their insurance premiums, leaving them exposed to financial ruin, according to sweeping new government data.

The numbers show how climate change is eroding the underpinnings of American life by making home insurance costlier and harder to hang on to, even as wildfires, hurricanes and other calamities increasingly threaten what is, for many people, their most valuable asset.

“Homeowners’ insurance is where many Americans are now feeling the financial effect of climate change directly, in their pocketbook,” said Ethan Zindler, climate counselor at the Treasury Department. “Nature doesn’t really care whether people are living in a blue state or a red state or another state, or whether you do or don’t believe in climate change.”

The rising cancellation rates are part of a broader trend captured by the Treasury Department, which analyzed information for 246 million insurance policies issued by 330 insurers nationwide from 2018 through 2022. The result is the most comprehensive look yet at the effect of climate change on the American home insurance market.

Homeowners with mortgages are generally required by lenders to carry insurance. But people who own a house outright, perhaps because the property has been in a family for decades or generations, have the option of dropping insurance.

The cost and frequency of insurance claims are rising quickly in the highest-risk parts of the United States, as defined by the Federal Emergency Management Agency, according to the numbers. They show that the financial stress on insurers is also growing.

So, too, is the cost of insurance, which has risen far more in high-risk areas than elsewhere.

As those trends worsen, more people are getting thrown off their insurance plans. That happens two ways. One is through cancellations, when insurers drop homeowners who fail to pay their premiums. Another is through nonrenewals, in which insurers refuse to renew the policies of homeowners who want to keep paying for coverage.

The rates of both cancellations and nonrenewals are increasing, and those increases are most pronounced in high-risk areas.

In more than 150 ZIP codes around the country, insurers canceled at least 10 percent of home insurance policies in 2022, the most recent year for which numbers are available, because homeowners failed to pay their premiums, according to the data. Cancellation rates were highest in coastal areas in the Carolinas, including Hilton Head, Charleston and Myrtle Beach, which are especially exposed to hurricanes. They were also high in parts of West Virginia, Arizona and California.

The data doesn’t capture why homeowners chose to stop paying. But Nellie Liang, the Treasury Department’s under secretary for domestic finance, said her team viewed it as an indicator of families facing growing financial stress worsened by climate change.

“Households are not able to bear the burden by themselves,” Ms. Liang said.

As for cases where insurance companies refused to renew policies even for their paying customers, those nonrenewal rates were also higher, and grew faster, in high-risk areas. The ZIP codes with the greatest share of nonrenewals in 2022 were in coastal South Carolina as well as parts of California, including in Sonoma County and Yuba County, which have been hit by wildfires. Areas of Tennessee that have suffered severe storms also saw high nonrenewals.

The destabilization of the home insurance market doesn’t hurt only homeowners, Ms. Liang said. It also threatens property-tax revenues that communities rely on, since tax receipts can decline if homeowners can’t rebuild or if homes lose value. It also hurts local businesses that rely on homeowners as customers.

“There’s a lot to worry about,” Ms. Liang said.

The Treasury Department’s effort to gather data was complicated by the political clashes over climate change, and also over who gets to regulate insurance companies.

The department announced the effort in 2021 as part of the Biden administration’s efforts to address the financial effects of climate change. Its original plan was to gather data directly from insurance companies. But some state insurance commissioners (which regulate the industry) objected, backed by Republicans in Congress.

So the Treasury Department let state commissioners gather the data. Or not gather it: Seven states — Florida, Alabama, Louisiana, Georgia, Indiana, Montana and North Dakota — declined to participate. According to the Treasury Department, this meant that local insurance companies that happen to be headquartered in those states did not provide data. But national insurers still provided data for homeowners they cover in those states. (Another exception was Texas, where they did not provide some data.)

In addition, the states that did participate chose to withhold some important information, including data from their state-mandated high-risk-insurance plans. Those plans, which are designed to provide insurance to people who can’t buy it from regular insurance companies, are becoming more important as climate change worsens. Excluding those plans means the data doesn’t capture the experience of many homeowners facing the highest risk from climate threats.

And of the data that was collected, the National Association of Insurance Commissioners, which represents state commissioners and compiled data from them, shared only a portion with the Treasury Department.

The association did not immediately respond to a request for comment.

The Treasury Department, as part of its report, called on state commissioners and the national association to keep working with the agency’s Federal Insurance Office to gather and publish the data annually, and even expand that effort by including information for high-risk pools.

The chances of that happening are unclear. Last month, Republican state insurance commissioners wrote to Elon Musk and Vivek Ramaswamy, the leaders of what President-elect Donald J. Trump has called his new Department of Government Efficiency, urging them to scrap the Federal Insurance Office altogether.

They argued that the office’s work gathering data on climate change showed that the federal government was trying to exceed its authority and that, by moving ahead with releasing the new data, the office “has chosen to proceed with flawed information, which risks misleading the public.” The commissioners did not say why they viewed the information as flawed.