In New Orleans, the home insurance sector is facing a crisis, significantly affecting homeowners like Alfredo Herrera, who are left with scant coverage options and exorbitant premium hikes. Herrera, a 35-year-old finance professional at a local bank, purchased a modest 900-square-foot residence in the Mid-City area in 2020 for $270,000, where he resides with his partner.
Initially, his annual home insurance cost was $1,600, but in a sudden turn of events last July, his insurer withdrew from Louisiana, leaving him uninsured. Historically, securing home insurance was straightforward, but the escalating impact of climate change on weather patterns has led insurers, particularly in regions prone to floods and fires, to either increase premiums or exit the market entirely, thus affecting both affordability and availability of home and fire insurance.
Herrera’s search for a new insurance plan proved challenging; even the state’s last-resort insurer, Louisiana Citizens, quoted an unaffordable rate exceeding $7,000 per year.
Eventually, he settled for a policy from a smaller local company at an annual cost of $4,930, marking a staggering 208% increase from his previous rate. “It’s a very difficult situation,” Herrera expressed, having never foreseen such limited private insurance options and exorbitant costs. “We’re against the wall,” he lamented, highlighting the lack of competitive options in the market.
Extreme climate disasters in last year
This predicament isn’t unique to Herrera; many homeowners in Louisiana and other regions increasingly vulnerable to extreme weather share similar stories. Last year, the United States experienced a record 28 weather and climate disasters, each incurring losses over $1 billion, as reported by the National Oceanic and Atmospheric Administration.
This is a significant rise from the annual average of 8.5 recorded between 1980 and 2023. A survey by Louisiana State University revealed that 17% of homeowners in the state had their policies canceled by their providers, and 63% reported a rise in insurance costs compared to the previous year.
The Insurance Information Institute noted an approximate 10% to 12% surge in homeowners’ insurance costs across the United States last year.
Mark Friedlander, the institute’s spokesperson, attributed this to insurers facing higher expenses due to more severe storms, increased replacement costs, and re-insurance—a strategy insurers use to mitigate their risks. These costs inevitably trickle down to consumers, meaning that even homeowners in lower-risk areas end up paying higher premiums to subsidize those in high-risk zones.
The situation is mirrored on the west coast, where Neil Fernandes, a 42-year-old software engineer from Santa Clarita, California, saw his Farmers Insurance premium double from $1,700 to $3,200 last year. Despite living near a fire station and no change in local fire hazards, he was compelled to seek alternative policies due to the cited reasons of rising costs and heightened fire risks.
His search yielded few options, and he reluctantly switched to AAA home insurance at $2,880 annually. The increased financial burden forced Fernandes and his family to adjust their lifestyle, cutting back on driving, dining out, traveling, and postponing home improvements.
He is currently contesting AAA’s valuation of his home insurance, which he believes is inflated. AAA has not issued any comments regarding this matter.
Fernandes, like many homeowners, is concerned about future shocks to home insurance prices, an issue he hadn’t anticipated when purchasing his home. “As a homeowner, I always worry about things like paying taxes for good schools and community upkeep,” he shared. “Now I have to worry about insurance coverage as well.”
The Impact of Climate Change on Home Insurance
As climate change intensifies, its effects are being felt in the home insurance industry, with some insurers ceasing to issue policies in areas most vulnerable to natural disasters.
In California, State Farm halted policy issuance due to wildfire risks, and in Florida, Farmers Insurance withdrew from the market entirely. The retreat of these companies has led to a surge in policies issued by state-backed “insurers of last resort,” often at higher costs for more limited coverage.
State Farm’s recent decision not to renew 72,000 policies in California—citing inflation, catastrophe exposure, and rising reinsurance costs—has pushed more homeowners towards the California FAIR Plan, a state program for those unable to secure regular insurance.
Similarly, in Florida, Citizens Property Insurance’s policy count has increased by 50% in the past year, now holding 16% of the market share.
The US Senate Budget Committee is investigating the financial resilience of Florida’s state-backed insurance against future disasters. Meanwhile, the industry-wide increase in home rebuilding and replacement costs—up 55% from 2019 to 2022—and subsequent reinsurance cost hikes have further strained homeowners.
Approximately 6 million homeowners, representing 7.4% of the total, have opted out of insurance, leaving an estimated $1.6 trillion in property value unprotected.
The Consumer Federation of America cautions that the uninsured home crisis could worsen without significant investments in climate adaptation and stricter insurance industry regulation. For homeowners like Diana Troxell, who faces a 250% premium increase and relies on Social Security, the situation is dire. After their insurer, Foremost Insurance, declined renewal due to wildfire risk, the Troxells were forced to turn to the FAIR Plan, which has nearly doubled its policy share since 2018, resulting in a substantial financial burden for the couple.
