The Great American Insurance Retreat: Climate Change, Uninsurable Homes, & The Future Of Real Estate – CleanTechnica

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Last Updated on: 8th March 2025, 11:58 am

The United States insurance industry is in crisis. And if you’re a homeowner or business owner in certain parts of the country, your ability to get coverage — let alone afford it — may soon disappear entirely. This isn’t some far-off projection for the 2040s. It’s happening now.

From 2017 onward, climate change has driven a surge in extreme weather events — unprecedented wildfires, devastating hurricanes, inland flooding, and derechos — all of which are breaking traditional risk models and sending insurers running for the hills. The result? A growing number of regions where home and commercial insurance is becoming unaffordable, unreliable, or outright unavailable.

The mechanics of insurance are simple: companies collect premiums, calculate risk, and pay out claims when disaster strikes. But the climate crisis has introduced a fundamental problem — catastrophic losses are occurring with such frequency and severity that insurers can’t accurately price risk anymore. The so-called “once-in-a-century” events are happening every few years, making it impossible to sustain profitable operations.

Take Florida, for example. In the wake of stronger, wetter, and more frequent hurricanes, multiple insurers have fled the state. Homeowners have seen their policies canceled outright or their premiums skyrocket, in some cases exceeding mortgage payments. Florida’s state-backed insurer of last resort, Citizens Property Insurance, has ballooned to cover 1.4 million policies as private carriers pull back. The situation is so dire that even Citizens is looking for ways to depopulate itself, shifting policyholders back to the private market — except the private market doesn’t want them.

I first wrote about challenges to Southern Florida’s real estate over six years ago, focusing not only on the longer term risks due to sea level rise such as the likely failure of the Biscayne aquifer, but also this insurance problem, saying:

More major hurricanes of greater severity will likely hit it, causing damage that owners and insurers decide not to repair. More people, mostly poorer, will leave never to return.

However, California is no better. A wave of destructive wildfires, many ignited by failing utility infrastructure, has turned vast swathes of the state into an insurance pariah. After record-setting wildfire payouts in 2017 and 2018, major insurers like State Farm and Allstate halted new policies in the state’s high-risk areas. California’s insurer of last resort, the FAIR Plan, is now bearing a load it was never designed to handle. And as insurance options dwindle, home sales in fire-prone regions are stagnating, with properties losing 20-40% of their value.

Louisiana, South Carolina, Texas, and even parts of New England are also facing rising insurance turmoil. Reinsurance costs, the insurance that insurers buy to protect themselves, have surged by nearly 40% in the US, forcing companies to pass costs onto homeowners. For those who can’t pay? Policies are simply dropped, leaving them unprotected in a worsening climate reality.

For those who can no longer find private coverage, state-backed insurers of last resort have been the fallback option. But here’s the catch: they are themselves at risk of financial collapse.

These insurers were never meant to be primary coverage providers. Their purpose was to offer emergency coverage for those temporarily displaced from the private market. But with insurers retreating en masse, these government-backed plans have become the only option for many homeowners, and they’re carrying liabilities that vastly exceed their original design. Florida’s Citizens, for example, is so overburdened that it now faces potential insolvency if another Hurricane Ian-level storm hits in the coming years. The same goes for Louisiana’s equivalent program, which had to borrow $600 million just to stay afloat after back-to-back hurricanes.

The real nightmare scenario? If a catastrophic event overwhelms these insurers, the burden will fall on taxpayers. And if state governments can’t shore up their reserves, homeowners across the country could be hit with emergency insurance levies, whether they live in a disaster-prone area or not.

Enter FEMA, the federal agency that bails out states when all else fails. FEMA has two main roles here: managing disaster relief and running the National Flood Insurance Program (NFIP), which covers millions of at-risk properties. But both are already stretched to their financial limits.

The NFIP is currently $20 billion in debt. Reforms were introduced to increase premiums in high-risk areas, but they’ve done little to solve the underlying problem: flood risk is accelerating, and the cost of claims continues to outstrip premiums. Without significant intervention, the program could implode.

And then there’s the political wildcard. The Trump administration has made clear its intention to gut FEMA’s funding and shift disaster response responsibilities to the states. The so-called “Project 2025” agenda outlines a plan to phase out NFIP entirely, leaving flood-prone homeowners to fend for themselves in the private market—a market that, again, doesn’t want them. During a visit to North Carolina on January 24, 2025, Trump suggested that state governments should handle disasters occurring within their jurisdictions, indicating plans to reform or dismantle FEMA.

The implications are staggering. If FEMA is defunded or NFIP is dismantled, millions of homeowners will have no viable insurance options, and the next major disaster could trigger an economic catastrophe that extends far beyond the affected areas.

So what happens to housing markets when insurance collapses? The early signs are already here. In many high-risk areas, insurance costs are driving down home values. Buyers are walking away from deals when they discover their only insurance option is a prohibitively expensive state-backed plan. In some Florida and California counties, home values have dropped by up to 40% in the most extreme cases.

Mortgage lenders are also sounding the alarm. Without insurance, banks won’t issue loans, effectively turning properties into stranded assets. Cash buyers — typically investors — are stepping in to scoop up properties at bargain prices, accelerating the gentrification of at-risk regions. The result? A growing divide between those who can self-insure or absorb sky-high premiums and those who are forced to abandon homeownership altogether.

While insurance woes are hitting both red and blue states, the political divide is evident in how states are responding. Conservative-led states like Florida and Texas have pushed deregulation and incentives to lure insurers back, though with mixed success. Meanwhile, Democratic strongholds like California and New York have taken a more interventionist approach, trying to force insurers to remain in the market through stricter regulations.

At the county level, the divide becomes murkier. Red counties in hurricane- and tornado-prone regions are being hit hardest by rising premiums and insurer withdrawals, while blue counties in wildfire-prone areas are facing similar turmoil. The universal truth? No political ideology will protect homeowners from the harsh reality of a broken insurance market in a rapidly changing climate.

The insurance crisis is a canary in the coal mine for climate adaptation. If insurers no longer believe certain places are livable, why should anyone else?

In the coming years, we’re likely to see a wave of climate-driven migration, as homeowners abandon uninsurable properties for safer ground. Cities and states that take proactive measures — like reinforcing infrastructure, implementing strict building codes, and investing in resilience — will be the ones that attract investment and sustain property values.

For the rest? The retreat has already begun. Unfortunately it won’t be managed retreat. I co-authored Canada’s municipal guide for managed or planned retreat in the face of increasing climate risks a few years ago for NRCan, speaking to leading experts, including AR Siders, the foremost US academic working in the space. There’s little evidence since that American municipal leaders are listening to Siders and other Americans focused on managed retreat, and thoughtfully working to protect their citizens by moving them out of at increasingly risk areas.

As such, it’s unplanned retreat, which looks like ghost towns, abandoned neighborhoods and Detroit at its desolate worst. That’s the future for large swaths of America as the country turn its backs on both the reality of climate change and helping its most at risk citizens.