As the risk of damage from a natural disaster increases, insurance providers are responding by raising premiums or restricting coverage.
In some states, insurance providers have limited their business or pulled out altogether. In California, seven out of the top 12 property insurance providers have paused or restricted new policies since 2022. In Florida, some private insurers have become insolvent and left the market, necessitating a state-operated alternative called Citizens Property Insurance Corporation. In 2023, the US Committee on the Budget launched an investigation into the solvency of Citizens.
Public flood insurance premiums are rising
In the absence of more comprehensive public data, the National Flood Insurance Program (NFIP) provides an example of how increased losses from climate events are putting insurance programs at risk. The NFIP is a public insurance provider operated by the Federal Emergency Management Agency (FEMA) and designed to insure Americans specifically against flood damage.
According to FEMA, shifts in weather patterns have increased flood risks in recent decades, causing NFIP to suffer losses and accumulate billions of dollars of debt. According to the CRS, NFIP went from debt-free in 2004 — the year before Hurricane Katrina — to $20.5 billion in debt in 2024, even after $16 billion of debt was canceled in 2018.
The NFIP uses premiums to cover the interest on its debt to the US Treasury, not to make a profit. However, FEMA has stated that the program’s sustainability is questionable without changing that practice.
In recent years, NFIP premiums have increased in cost at higher rates than inflation, rising between 6% and 12% each year from 2015 to 2021.
Where are properties most at risk of natural disasters?
The threat of property damage from natural disasters persists throughout much of the nation. FEMA maintains a National Risk Index assessing the regional risk of damage incurred from 18 different natural causes. The index considers the likelihood of these hazardous natural events, the vulnerability of the population, and the community’s capability to prepare for and respond to the hazards.
According to the National Risk Index, approximately 45.7 million people, or 13.8% of the US population, live in counties with very high risk. Another 86.8 million, or 26.2%, live in areas with relatively high risk.
