An insurance crisis is mounting in these 15 states
Every state in the U.S. faces climate-related damage, but the financial strain on insurers has been building in some states more than others. These 15 states are most vulnerable to the next insurance market crisis.
Alabama
Recent Insurify data suggests the Gulf Coast insurance crisis is spreading from Florida and Louisiana to neighboring states, including Alabama. The state is vulnerable to hurricanes and tropical storms and has the seventh-highest home insurance costs in the U.S., at an annual average of $4,082.
Alabama determines building codes on a local level, which means homes aren’t uniformly resilient. The state ranks second-lowest on the East Coast for storm damage mitigation, according to the Insurance Institute for Business & Home Safety’s (IBHS) annual “Rating the States” report.[7] Insurers factor in building resiliency when determining premiums.
The Alabama legislature recently passed a law to create a statewide building code, which could strengthen the insurance market by mitigating damage to new developments — but growing catastrophic losses will lead to more rate hikes. Insurify projects Alabama home insurance and car insurance costs will increase by 9% and 18%, respectively, in 2024.
Arizona
Arizona residents have lower-than-average home insurance premiums — but given the growing wildfire risk, homeowners could see significant hikes and fewer coverage options in the near future. Arizona homeowners paid an average of $1,961 for insurance in 2023. As of October 2024, rates have increased by 10% to $2,158.
Last year, the Tunnel Fire burned through nearly 21,000 acres near Flagstaff and destroyed 109 structures, including 30 homes. In northern Arizona, some insurers are non-renewing policyholders who are in good standing, partially because of wildfire risk, ABC15 reported. In a move potentially foreboding more insurer exits, CSE Insurance pulled out of the state in 2023.
Arkansas
Arkansas has multiple severe and significant weather risks. Climate-related damage contributed to insurer losses last year, with Arkansas home insurers reporting the second-highest loss ratio (133.3%) in 2023.[8] Losses show no sign of slowing in 2024. Severe thunderstorms, hailstorms, tornadoes, and high winds hit Arkansas in May.
Home and auto insurance companies are noting these destructive weather patterns and raising premiums in response. In the first half of 2024, Arkansas saw the cost of full-coverage car insurance increase by 23%.
Arkansas is also among the 10 states with the most expensive home insurance, with an average annual premium of $3,444 in October 2024. American National withdrew from the Arkansas home insurance market this winter, and more insurers could soon follow if losses continue.
Colorado
More than 321,000 Colorado homes are at moderate or greater risk of wildfire damage, and CoreLogic estimates reconstructing those houses would cost $140.9 billion. Colorado also has the second-highest average financial loss to hail in the U.S. (after Texas), at $151 million annually.
Coloradans are already seeing the state’s climate risks reflected in their premiums. Home insurance costs are the fourth-highest in the country, at an annual average of $4,599. The state’s home insurers have had the fourth-highest loss ratios in the U.S. over the past five years, according to the Colorado Division of Insurance.
More than three-quarters (76%) of insurers pulled back in high-risk areas in 2022, allowing the five largest companies to control the market.[9] As weather risks and insured losses increase, Colorado drivers and homeowners can expect continued premium hikes and fewer insurers operating in the state.
Hawaii
Hawaii home insurance is less expensive than average, at $1,187 annually, but increasingly severe natural catastrophes could drive future premium hikes. Home insurers had the highest loss ratio in 2023 after devastating wildfires tore through Maui, according to P&C Specialist.
After the fires, a photo of a seemingly untouched “miracle house” in the leveled town of Lahaina went viral. An IBHS study found that fire-resistant construction, rather than a miracle, saved the home.[10]
However, Hawaii’s legislature is considering a bill that would slow the adoption of the gold-standard International Building Code (IBC) from every three years to every five years. These codes contain updated guidelines on weather-resistant materials and techniques.
Stalling code adoption would reduce developers’ costs and allow them to build more homes, but it could set back building safety in Hawaii.
“The trade-off [of not building resilient homes] is horrific in its reality. It’s death,” said Gabriel Filippelli, executive director of the Indiana University Environmental Resiliency Institute (ERI), referencing the 102 Maui wildfire fatalities. “It’s particularly disingenuous because you can build fire-resistant lower-cost housing.”
Every $1 spent on resilient construction saves $6 in recovery if a severe weather event occurs, CoreLogic reported.
The 2023 wildfires caused an unusual amount of damage, Filippelli noted, but Hawaii is also particularly vulnerable to typhoons and high wind events. Replacing lost homes with less-resilient construction would be “extremely shortsighted,” he said.
Illinois
Severe weather has always caused insurance challenges in Illinois, from freezing pipes to tornado and hailstorm damage. But as weather events become more extreme, insurers and policyholders are feeling the effects. After eight separate billion-dollar weather events, P&C Specialist reported Illinois home insurers had the eight-highest loss ratio in 2023.[11]
Insurify’s data science team projects the average annual home insurance premium will hit $2,245 by the end of 2024 — a 10% increase from 2023 fueled by climate-related damage. Insurify projects Illinois car insurance premiums will rise by 31% in 2024, bringing average annual costs to $2,181.
Illinois insurers have already pulled back, with Pekin Insurance pausing new policy writing and SECURA Insurance dropping policyholders — an early sign the Illinois insurance market is hardening.
Iowa
Iowa home insurers are hiking premiums and, in some cases, exiting the state after losing money for the past four years.[12] Iowa is particularly vulnerable to hailstorms and derechos — long-lived bands of rapidly moving thunderstorms and high winds that produce destruction similar to tornadoes. The June 2023 derecho left downed trees and power outages in its wake.
Reinsurance companies, which provide insurance for insurers, are more reluctant to cover parts of Iowa, according to Iowa Insurance Commissioner Doug Ommen.[13] Insurance companies distribute the rising cost of reinsurance to policyholders through higher premiums, but some home insurers have still been unable to operate profitably.
Celina, IMT Insurance, Pekin Insurance, and SECURA Insurance have dropped policyholders, affecting tens of thousands of Iowans. Some homeowners have had to pay for costly roof replacements to qualify for coverage, the New York Times reported.
Iowa homeowners paid an average of $2,120 annually for insurance in 2023 — but costs have already risen by 14% to $2,416 this year. As of October, Iowa homeowners have seen the third-highest year-to-date increase in home insurance premiums.
Michigan
Michigan drivers have the ninth-highest full-coverage premiums in the U.S., at an average of $2,719 as of mid-2024. The state’s no-fault insurance system — which Florida also follows — potentially sets up Michigan for an insurance crisis.
In no-fault states, policyholders file claims with their own insurance companies after a car accident, regardless of fault. The system aims to speed up the claims process but often leads to increased insurance fraud and higher premiums.
Climate risk could also drive more insurers out of the state. Last year, losses caused SECURA Insurance to stop offering personal lines of insurance in several states, including Michigan. Ice cover on the Great Lakes is decreasing, which leads to more extreme winter lake-effect precipitation and increased flooding in Michigan.[14]
The state’s average annual home insurance premium of $2,243 is a few dollars lower than the U.S. average of $2,477 — but as of October, rates have increased by 22% this year, driven by severe weather and home insurer losses in 2023.
Minnesota
Minnesota sees severe hailstorms — one of which caused $1 billion in damage last August. The state’s climate risk is one of the main drivers behind a 55% car insurance premium hike over the last year and high home insurer losses, with insurers losing money in six out of the last seven years.[15]
As hailstorms increase in severity and frequency, Minnesota residents will likely see their home and car premiums rise, too. If weather-related losses continue, insurers may be more hesitant to write policies in the state.
Mississippi
Mississippi has the sixth-highest home insurance costs in the country, with an average annual premium of $4,086 in October, according to Insurify data. The state was one of 18 where home insurers lost money in 2023, the New York Times reported. Five individual billion-dollar weather events in 2023 contributed to these losses.[16]
Coastal homeowners are especially affected by catastrophic insurance pricing. As of October 2024, average annual premiums in Ocean Springs, Mississippi, have skyrocketed to $9,153, compared to the U.S. average of $2,435. Ocean Springs’ risk of natural catastrophes is in the 96th percentile nationwide, according to the FEMA National Risk Index (NRI).
Missouri
Car insurance premiums in Missouri have increased by 51% over the past year, according to Insurify data. Home insurers also reported losses in 2023.[17] These hikes and losses are largely driven by hailstorms, which affect auto and home insurance and make Missouri less attractive to insurers.
Missouri is tied with Colorado for the fourth most major hail events (400) in 2023, according to the Insurance Information Institute. As hailstorms become increasingly frequent and intense, Missouri premiums will continue to rise. Insurify projects full-coverage car insurance premiums will average $2,673 annually, and home insurance costs will hit $2,697 by the end of the year.
North Carolina
Hurricane Helene recently carved a path of destruction through North Carolina that officials have described as “biblical.” Heavy rains flooded large stretches of highway, closing down all roads in the western part of the state. The hurricane disrupted power and damaged the water system, which could take weeks to restore. At least 61 people died in Asheville’s Buncombe County.
Despite the state’s high hurricane risk, North Carolina follows the out-of-date 2015 International Residential Code (IRC). The IRC releases an update every three years with information about modern building materials and methods that reduce climate-related damage — but the state legislature put a moratorium on new building codes until 2031.
Anti-regulation laws have consequences for homeowners. Insurers factor in building resiliency when setting rates, and grant funders consider it when allocating money for climate resilience projects.
“They’re cutting off their nose to spite their face,” said Filippelli. “The federal government is continuing what is basically a firehose of climate resilience funding throughout America. Some of these state legislatures have been either passively or actively positioning themselves not to accept that money. It hurts these communities that need protection.”
Nationwide responded to North Carolina’s hurricane risk by non-renewing more than 10,000 home insurance policies in 2023. Nearly 5,000 of those policyholders went to the North Carolina Insurance Underwriting Association’s Beach Plan, the state’s insurer of last resort.[18]
Earlier this year, the North Carolina insurance commissioner rejected a proposal from home insurers seeking to increase rates by 42% statewide and 99% in coastal areas. Homeowners can still expect to see average annual insurance costs increase by 10% in 2024 and hit $2,327 by the end of the year, according to an Insurify projection.
Oklahoma
Oklahoma has severe hailstorms and tornadoes, which contributed to home insurers having the seventh-highest loss ratio in 2023, P&C Specialist reported. Insurers, including Farmers and American National, are choosing to non-renew policies in some regions or exit entirely due to climate risk.
Remaining Oklahoma insurance companies are raising premiums dramatically. Drivers saw full-coverage insurance costs increase by 22% in the first half of 2024. Oklahoma is also the third most expensive state for home insurance, with an average annual premium of $6,034.
South Carolina
Severe winds and historic flooding from Hurricane Helene killed at least 36 residents and downed power for nearly 900,000 customers in South Carolina. The U.S. National Weather Service in Greenville-Spartanburg called Helene “the worst event in our office’s history.”
“South Carolina seems to be a watch state for insurers, particularly for homeowners insurance, for the same weather-related reasons as North Carolina,” said Stella.
South Carolinians pay 24% more than the U.S. average for home insurance, with an average annual premium of $3,079 in October 2024. Homeowners may soon see more premium hikes. The state used to average 1.5 individual billion-dollar weather events annually in the 1990s and 2000s but has averaged five billion-dollar weather events annually for the last five years.[19]
South Carolina has the third-highest percentage of housing units at risk of storm surge flooding (21%), according to the insurance software platform Guidewire. But unlike North Carolina, South Carolina has strong, uniformly enforced building codes that mitigate natural catastrophe damages, which could somewhat stabilize the insurance market after the next severe storm.
Texas
Texas insurers have started to flee the natural-catastrophe-prone state. The state’s climate risks (hurricanes, hailstorms, tornadoes, wildfires, and flooding) create the perfect storm for an insurance crisis. These weather risks factor into the state’s average annual home insurance premium of $4,431, the fifth-highest nationwide.
Texas had 16 individual billion-dollar weather events in 2023, according to the National Oceanic and Atmospheric Administration (NOAA). As of mid-September, the state had seen 17 separate billion-dollar events in 2024, including Hurricane Beryl, which caused an estimated $6 billion in damage. As a result, wind and hail damage claims have increased by 45% in the past year.[20]
Foremost Insurance stopped writing and renewing policies in the state weeks before Beryl hit. One month after Beryl, Progressive temporarily halted home insurance policies in Texas and some Midwestern states. Texas accounted for nearly 40% of Progressive’s storm losses in the second quarter of 2024.[21]
If too many insurers leave the market and homeowners can’t find policies through private insurers, Texas risks overburdening the FAIR Plan, its insurer of last resort. Texas FAIR Plan policies increased by 26% in the first half of 2024, according to a Texas Department of Insurance report.
Texans should expect more premium hikes in 2024 and 2025, says Stella. “Texas homeowners will continue to absorb the cost of the high-dollar climate-related losses that insurers have incurred and anticipate experiencing in the year ahead.”
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