Natural Disasters and Extreme Weather Insurance: What’s Needed?
By Michael Giusti
With rising global temperatures and devastating natural disasters, 2024 was the fourth year in a row that insured catastrophic losses exceeded $100 billion, which has translated into a tough market for property insurance. And with meteorologists and climate scientists predicting the trend of climate-fueled mega-disasters to continue into the foreseeable future policy holders will continue to face rising premiums – or gaps in coverage But the more we understand about the insurance market, the more we’ll be able to navigate these challenges and financially protect ourselves as effectively as possible.
Climate Exposure
Despite being a cool month in the United States, globally January 2025 was the warmest January on record, according to the World Meteorological Organization.
And, according to the National Oceanic and Atmospheric Association, 2025 is likely to be to be one of the top five warmest years on record.
Already this year has seen its share of climate-fueled mayhem.
Although in January the wildfire activity was low nationwide, the nation watched in horror as historic wildfires ripped through urban areas in Southern California — fueled by dry conditions and Santa Ana Winds. Those wildfires burned more than 57,000 acres, destroying more than 16,000 structures and killing 29 people.
Looking ahead, wildfire risk in early spring is predicted to be the highest in the Southeast, especially in Georgia and Florida. By May, California will again be facing the risk of fires, as its traditional fire season heats back up.
And the weather oddities of 2025 haven’t been limited to wildfires. Across the nation, a polar vortex brought plunging temperatures to much of the nation, most notably along the Gulf South, where cities broke 100-year-old snowfall records. New Orleans alone recorded 10 inches of snow — more than it had snowed there since the late 1800s.
And as winter winds down, the risk of so-called “severe convective storms” – hail, tornados and windstorms — comes into view. The biggest risk of these storms is along the traditional “tornado alley” ranging from South Dakota through the plains to middle Texas. According to a CoreLogic study, by 2050, depending on CO2 emissions trends, the risk of severe convective storms will grow in those areas, but also spread disproportionally into the Gulf South and along the southern Eastern Seaboard as well as throughout the Great Lakes region. CoreLogic estimated that more than 53 million homes today are at moderate or greater risk of damage from 65 mph winds.
According to the National Centers for Environmental Information the 2020s have already experienced five of the six worst years in terms of overall billion-dollar-plus claims events in the history of the industry (even after adjusting for inflation).
All of that adds up to a risk environment, characterized by Transunion’s Q1 2025 Insurance Personal Lines Trends and Perspectives, as particularly exposed to catastrophic weather.
Homeowners Insurance
Most climate-fueled risks are covered by standard commercial homeowners policies. That said, in some states some specific risks, such as wildfires or windstorms, can be excluded by some policies, leaving those homeowners to need a separate additional policy to cover those risks.
Unless it is excluded, though, damage to a home by a fire, winds, lightning, hail, or other severe weather falls squarely within a homeowners policy’s purview.
Additionally, if the home is damaged or otherwise inaccessible, such as during a mandatory evacuation, homeowners policies also provide what is known as a “loss of use” provision, which pays the homeowner for excess living expenses, such as hotel rooms, additional meal costs, and sometimes emergency clothing.
Loss of use coverage limits are usually a percentage of the cost of the home – say 10% depending on the policy. So, for a $500,000 home, loss of use would cover up to $50,000 of increased expenses while the home is being repaired.
With the increasing frequency of disasters, homeowners protections are coming at a high cost for many insurers. In turn they are requesting premium increases from state regulators. According to JD Power, homeowners and renters premiums have exceeded the rate of inflation for several years.
But even with those higher premiums, some areas are seeing more losses than the insurers can recoup, putting them on shaky financial footing.
In some states, standard homeowners policies are tough to find in riskier areas. States like California, Florida, and Louisiana are seeing homeowners carriers pull out of the market and either non-renew policy holders or pull out altogether.
“If they don’t feel they can get a fair return, they are going to pull back their exposure to that market,” said Patrick Foy, senior director of strategic planning for TransUnion’s Insurance business.
Increasingly insurers are struggling in other areas of the country as well. A New York Times analysis evaluated profitability by insurance companies in different states. Insurance markets in states as far inland as Iowa, Arkansas, and Ohio are facing steep underwriting losses.
Higher premiums have pushed shoppers to actively search for less expensive policies more than in the recent past. According to TransUnion, 16% more policyholders shopped for new homeowners insurance in 2024 than did the year before. And they weren’t just shopping. Of the people who shopped for new policies, roughly 40% of them switched to a new carrier.
If homeowners can’t find coverage through traditional major carriers, many are being forced to look into the unregulated “surplus” or “unadmitted” markets for coverage. These are policies that aren’t regulated in the same ways as traditional policies and sometimes have much higher premiums and often much more limited coverages. But if no other policy is available, it is often one of the only choices. Surplus lines also aren’t backed by the state insurance funds in case a catastrophic disaster bankrupts the insurer, potentially leaving the homeowner without anyone to pay their claim.
“Ultimately that is where it is going to head if you have insurers who can’t get the rate of return through traditional pricing to stay profitable,” Foy said.
Even with the limitations of surplus lines, those tend to have lower premiums than the state insurers of last resort, such as a FAIR or Citizens plain, which are often required by law to have the highest premium of any policy available in the market.
Still, states like California, Louisiana, and Florida have seen their insurer of last resorts’ rolls swell as homeowners run out of other options to insure their homes.
Other coverages
Aside from homeowners policies, other insurance policies come into play to protect from disasters. One of the costliest disasters – floods – are covered by the federal National Flood Insurance Program.
Earthquakes are also excluded by homeowners policies but can be covered by a homeowners policy add-on or as a separate stand-alone policy.
If a disaster damages a vehicle, comprehensive auto insurance will cover those losses, whether they are from hail, floods, fires, toppled trees, or other natural disasters.
If the disaster upends someone’s vacation plans, a travel insurance policy will help ease the pain and work to get the trip back on track.
Businesses coverage is also useful for extreme weather, whether that is to protect from the liability of a slip and fall on an icy walkway, or a collapsed roof due to heavy snow, or even damage from a hurricane.
Similar to a homeowners policy’s loss of use coverage, business interruption or business income insurance policies can replace revenues the business is no longer able to earn while their premises are damaged.
There are even specialized policies available for business like ski resorts that rely on enough snowfall to operate but then get hit with a snow drought.
The Big Picture
Multibillion-dollar disasters have taken their toll on insurers. Large multinational reinsurers are raising reinsurance rates to account for bigger risks. And property insurers are having trouble raising their premiums to keep up with losses in many markets.
But nationally, the homeowners insurance market is generally stable. Rate increases will likely continue to sweep the industry for the near future, and insurers will likely continue to pull back from the riskiest communities. But for most people, even if it is expensive, insurance is still the key to protecting their biggest investments.
Michael Giusti, MBA, is senior writer and analyst for InsuranceQuotes.com
