More and bigger storms make it tough to get coverage

As Hurricane Debby left Florida sopping wet and headed north, homeowners minds turned to their insurance coverage. Whatever you think about climate change, the fact is that damage from storms, wildfires and other natural disasters is steadily increasing.

Combine this with continued building in storm- and fire-prone areas and insurance companies start to run for cover.

Damage from natural disasters now averages $120.6 billion, more than double the annual average from the previous 44 years.

The inevitable result is skyrocketing premiums and outright cancellations for homeowners like Marisa, a thirtyish screenwriter and actor. Her three-level townhouse in the Studio City section of Los Angeles is roomy enough for a small studio in the basement, table reads and brainstorming sessions on the main level and two spacious bedrooms upstairs.

But the dam burst in 2023. Two water leaks caused by faulty plumbing caused more than $70,000 in damage. Next a huge storm swept through in the spring of 2024, once again flooding the property, thanks to an aging roof.

The condo association is slowly repairing the damage while imposing an $8,000 special assessment on homeowners to replenish its contingency fund. Marisas insurance company, Travelers, meanwhile, notified her it would not renew her policy. She soon learned that others in the apartment complex had also lost coverage.

All of this followed a $10,000 special assessment imposed by the condominium association to fund a foundation retrofit to make the aging building more resilient to earthquakes.

At least we havent been hit by any wildfires, so far anyway, she said.

A futile search for insurance

The search for a replacement policy has been futile. Marisa applied online to an endless succession of companies. Her father called more than 30 insurance brokers in the area, including a specialist recommended by his financial advisor.

No luck. Most brokers just hung up after a few terse comments. A few provided the unwelcome news that they didnt represent a single company that was issuing homeowners policies in that part of Los Angeles. Some have pulled out of Southern California completely.

Time to sell? Maybe, but its pretty hard to sell a $1 million property that cant be insured, since lenders arent in the business of writing mortgages for uninsurable homes. In fact, Marisas mortgage provides she must maintain a homeowners policy or be subject to foreclosure.

A call to the mortgage company allayed that fear, at least temporarily. Dont quote me but were not foreclosing on people like you, a company rep told her. We cant get insurance either and we cant sell a house nobody can insure. So just sit tight and maybe the state will do something eventually.

California, considering itself a consumer-friendly state, has an emergency insurance fund, called California FAIR. It issues expensive, high-deductible fire insurance (no water damage, sorry) to those willing to hunt endlessly for agents willing to write a policy and to then wait for their application to be acted upon.

The insurance companies blame the state for the situation, saying the California Department of Insurance doesnt let them charge rates high enough to cover the risk.

California Insurance Commissioner Ricardo Lara says the department is implementing reforms that will make the FAIR program more effective.

By strengthening the FAIR Plan while providing financial stability and solvency protections, we are creating long-term security for consumers, homeowners, and businesses across the state that is long overdue, Lara said.

Not just California

Its not just California, of course. Other states, most notably Florida, are having similar problems. The Consumer Federation of America estimates that more than $1.6 trillion worth of property is unprotected in the United States.

The CFA estimates that 7.4% of all homeowners in the country are uninsured, known as going bare. CFA warned that the problem of uninsured homes is likely to get worse in coming years without significant investments in climate change adaptation and stronger oversight of the insurance industry.

Many consumers are struggling to afford rising premiums and must go without homeowners insurance, said Sharon Cornelissen, PhD, CFAs director of housing. That puts them at risk of losing everything. One storm or wildfire means they have to go into deep financial debt to repair their home, live with unsafe and inadequate housing, or even become homeless.

Premiums going up

Not surprisingly, insurance premiums are going up for those lucky enough to be able to get insurance.

A new estimate says that total global insured losses from natural catastrophes can be expected to exceed $100 billion a year, not just this year but every year going forward.

The growth in exposure values, driven primarily by continued construction in high-hazard areas, and rising replacement costs largely due to inflation are the most significant factors responsible for increasing catastrophe losses, Bill Churney, president of Verisk extreme event solutions, said in a statement quoted by Insurance Journal.

Churney said climate change isn't the primary villain.

The other significant factor is the impact of climate change, which is often cited as the primary reason for the increase in losses. But, while this plays a role, year-over-year growth of exposure and rising replacement values have a far greater short-term impact.

Whatever the cause, the Verisk report says insurers should assume at least $100 billion in losses each year while preparing for a possible loss of $200 billion or more.

What this means for consumers both homeowners and renters is higher insurance premiums. California and Florida are often singled out but the factors Churney mentioned occur nearly everywhere, making it essential for consumers to be prepared to shop around for new insurance coverage if their existing policy is canceled or if they simply feel they're being priced out of continued coverage.

Take action to stay insured

What can homeowners do to control insurance costs? Besides avoiding building in areas notorious for natural disasters like hurricanes and floods, the answer is not much. But it's still necessary to be prepared if your policy is canceled or the premium becomes unaffordable.

The first step is to know your renewal date. One to three months before this date, your insurer should notify you if they decide not to renew your coverage or increase your premium. That gives you time to shop for another policy, the Consumer Financial Protection Bureau advises.

If you get bad news from your insurer, the first step is to contact them and ask why. You may be able to get them to reconsider. If you have not had any major claims and if you have safety measures like fire and smoke alarms, sump pumps, flood protection valves or other devices that help keep your property safe, you can use that as evidence that you're not a high-risk client.

Be ready to shop around

Maybe you'll get lucky and none of this will happen to you. But then again, maybe not. That's why it's a good idea to get familiar with insurers writing policies in your area. Remember, insurance is regulated at the state level. The policy your brother in Missouri has may not be available to you in Illinois.

The National Association of Insurance Commissioners has a list of the companies licensed to write policies in each state. It's a good place to familiarize yourself with what's available in your state.

You may find that you just can't find a policy from a private company. Fortunately, most states have fallback plans that will provide coverage, though the cost may be much higher than a private policy and the coverage is likely to be minimal. The NAIC has information on this as well. The Consumer Financial Protection Bureau also has an excellent guide to insurance questions.

Don't forget flood insurance. Homeowners insurance does not cover floods. There is a government-backed federal flood insurance program that everyone in a flood-prone area should look into and sign up for.