"Death Spiral" For Financial Sector Increasingly Likely In Some Parts Of US As Insurance Rates Spike, Coverage Shrinks

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Last December, the U.S. Treasury’s Federal Insurance Office issued a report which found that from 2018 through 2022, the annual number of major disaster declarations for climate-related events was almost double the annual average in the 50 years from 1960 to 2010. Over the same time period, home insurance rates outpaced inflation by nearly 9 percent—even before Hurricanes Helene and Milton, Appalachian flooding in Kentucky and the most recent western wildfires. In the first three quarters of 2024, natural catastrophes caused the United States to suffer an estimated $145 billion in economic losses, of which nearly $80 billion was insured, according to the report.

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Current homeowners are more likely to become delinquent on their mortgages after an insurance premium increase. Prospective buyers can’t find or afford homes. Developers can’t bring new units to market. And operating costs for landlords can reach an unsustainable level, Edelman said, with effects trickling down to real estate agents, the lenders, mortgage services—the entire housing ecosystem.

Insurers are not transparent about what data they use to justify raising rates. And when rates become unaffordable, people often turn to “insurers who are fly-by-night operators or are very small and will go bankrupt the next time there is a major event,” said Anne Perrault, senior policy counsel for the Climate Program at Public Citizen. “And they just leave property owners high and dry.” Compounded by climate change, the insurance crisis could destabilize the entire financial system, Perrault said. ”In some ways, it’s just the beginning of a death spiral for some regions of our country.”

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Other moves by the Trump administration will make it more difficult for local and state governments to mitigate against future disasters, which otherwise could lower insurance costs. The Trump administration recently slashed jobs at the U.S. Forest Service, which fights fires and manages debris, and eliminated the FEMA Building Resilient Infrastructure and Communities program. Also known as BRIC, it funds improvements for wastewater and water treatment plants, building elevations and backup power systems to help communities survive floods. Without resiliency measures, local and state governments, as well as homeowners, will pay higher insurance rates to try to offset the risk.

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https://insideclimatenews.org/news/01052025/insurance-crisis-threatens-united-states-economy/