A Public Model for Home Insurance
A Public Model for Home Insurance
We must reimagine our disaster risk finance system so it reduces exposure and provides protection fairly.
With every extreme weather event, housing is damaged and belongings are lost. Insurance is supposed to be the safety net that helps people to recover and restart their lives. But as major disasters like hurricanes, wildfires, and hailstorms increase in frequency and severity thanks to climate change, more insurance companies are cutting back on policies, jacking up premium rates, or refusing to cover whole areas of the country. This change is leaving people who live in affected homes—including everything from single-family houses to multifamily rental buildings—facing financial hardship and even homelessness, among other ruinous consequences.
While this mounting crisis is happening across the country, from California and Iowa to Colorado and Minnesota, perhaps no state has been more affected than Florida, due primarily to its significant exposure to catastrophic hurricanes. Although hurricanes are becoming increasingly severe with climate change, they are not a new phenomenon. Insurance markets crashed after Hurricane Andrew in 1992; ever since, the state has tried to seduce insurance companies with deregulation and financial incentives.
But shoring up profits for insurance companies is not the answer to this crisis. Instead, the home disaster system in the United States should be redesigned to prioritize accessible and affordable recovery for households affected by major disasters. To do this, states should establish agencies that both reduce the damage caused by disasters and provide public disaster insurance for all households to help them recover when unpreventable catastrophes do strike.
What Is Disaster Insurance?
Home insurance is meant to ensure that people can maintain safe residences after individual and widespread emergencies. Disaster insurance (also called catastrophe insurance), a subset of property insurance, refers specifically to insurance coverage for major events causing widespread damage to multiple properties at once, from hurricanes to terrorist attacks. Like other forms of insurance, home insurance operates by defining responsibility for damages, determining the legitimacy of claims, assigning accountability, and providing compensation for losses.
Home insurance is not government mandated in the United States, but mortgage lenders typically require homeowners to purchase a minimum level of insurance as a condition of approving and maintaining a mortgage. If a homeowner does not purchase this minimum, the lender will do it for them, but this “force-placed” coverage only provides a payout to the lender to recoup their investment in case of a home-leveling disaster. The financers of both market-rate and affordable rental housing buildings also typically require building owners to hold multiple types of insurance policies. Beyond these requirements, households often seek to insure their homes and personal items against everyday emergencies and major disasters.
Because of these insurance requirements, most of us, whether we are homeowners or renters, are tied to the for-profit insurance industry. And as the climate crisis leads to greater unpredictability for insurance markets, this connection is exposing U.S. households to greater financial vulnerability. The U.S. disaster insurance industry currently serves as both a mechanism of collective protection and a vehicle for profit-making; it is expected to both support residents and housing finance institutions. If insurance becomes too expensive to maintain for either side, this fragile bargain could unravel, leading real estate markets to crumble and forcing homeowners to walk away from their mortgages despite years of investment. Such trends could spiral into a broader economic crisis, not unlike the one we experienced with the subprime bubble.
Renters, a population particularly exploited by financial systems looking to offload risk, face a related set of problems. Evictions and rent increases tend to follow climate-related disasters, and recovery assistance for renters is much lower and more difficult to access than aid provided for homeowners. Insurance costs for the buildings tenants live in are increasing, especially in the southeastern United States, and landlords have the power to pass these costs onto tenants in places where rent controls are limited or nonexistent. Meanwhile, affordable housing developers are already reporting the cancellation of new projects because they cannot afford today’s sky-high insurance rates.
Florida’s Market Failures
In Florida, homeowners’ insurance costs have spiked amid the near-
collapse of the state’s home insurance market following a series of high-profile hurricanes in recent decades. More than a dozen insurance companies have exited the Florida market in recent years, and just since 2022 at least six insurers in the state have become insolvent—leaving homeowners scrambling to find new providers, typically at drastically increased prices.
Florida’s political leadership has attempted to address these problems with market deregulation and financial incentives. Several public institutions also help to prop up the private insurance market, including Citizens Property Insurance Corporation, a nonprofit public company created as an insurer of last resort in 2002, and the Florida Insurance Guaranty Association, a state-run fund that pays policyholder claims in the event that an insurer goes bankrupt.
Despite these efforts, Florida is having trouble retaining large, national, diversified insurance companies, which are more financially stable and often more affordable. The private insurance companies still operating in Florida are primarily newer, smaller companies that conduct almost all of their business in Florida; some have an even narrower focus, such as one company that primarily sells wind-only policies in South Florida.
Larger insurers typically write policies across multiple states and types of disasters. Spreading and pooling risks in this way limits exposure to a single peril or regional loss event, like a damaging Gulf Coast hurricane. Without this ability to spread risk, small insurers are much more dependent on transferring financial risk to other entities, like reinsurers (insurers for insurers), the costs of which they then pass on to consumers. And consumers in Florida are paying the price: homeowners insurance rates in the state are the highest in the nation, averaging over $10,000 per household per year. In some counties, people are paying over 5 percent of their income on policies with Citizens.
Despite these problems, Florida’s politicians have continued to prioritize creating favorable regulatory conditions for private insurers. One way they’ve done this is to impose a “depopulation” mandate on Citizens, meaning it must force some of its current policyholders off its plans and onto private plans, even if those plans are more expensive. Despite this, Citizens is now the largest insurance company in the state, providing coverage to more than one out of every ten home-owning households.
Policymakers in the state have responded with measures to raise Citizens’ premium rates and further encourage depopulation. These measures mean not only that Citizens rates are going up in several parts of the state—one analysis found that Citizens will have to raise rates in Miami-Dade County by 80 percent in order to comply with a state law that forbids it from competing with private insurers—but also that private insurers can easily obtain a swath of new customers who will have to pay higher rates. Meanwhile, with Citizens now responsible for a tenth of the states’ policies, it may not have enough capital to fully pay out claims after major disasters.
To address this issue, state leaders have permitted Citizens to levy emergency fees on nearly all statewide property insurance policies for as long as is required to repay debt. This means that a serious financial loss for Citizens and other Florida insurers could result in additional fees for residents already dealing with a catastrophe. The Florida Hurricane Catastrophe Fund (a state-run provider of insurance for insurers) and the Florida Insurance Guaranty Association are backed up by yet more emergency fees on policyholders, meaning they could face multiple stacking fees during a devastating hurricane season.
Risk Shifts Rather Than Risk Reductions
The chaos in Florida’s home insurance markets makes clear that state policies to save private insurance are not making things easier for regular people. The existing approach shifts around the financial risks of major disasters to protect industry profits, rather than seeking to reduce financial risks to households and physical risks to homes. To the extent that the insurance industry does engage in risk reduction, it is channeled through so-called “risk-based pricing”: setting premium prices based on risk level to encourage people to reduce risks themselves, through actions like moving to a new location or installing a new roof. But people make decisions about where to live for all kinds of reasons, like proximity to schools, family, or jobs, and many households cannot afford to pay up front for major retrofits. Moreover, many needed risk-reduction measures, like sewer upgrades or neighborhood wildfire prevention, can’t be instituted by individuals.
In addition, those with more power and resources can distort price signals. The rich can pay extremely high insurance costs, or even go without insurance since they can afford to rebuild. Private housing developers, for their part, don’t have to worry about insurance beyond the construction phase, so they may have few qualms about building in risky areas. Those buying or renting those properties may reasonably assume that the housing is safe; when it turns out that it’s in a flood zone, those who “chose” to live there are left in the lurch.
Physical risk reduction measures can save money—estimates suggest as much as $13 for every $1 invested—and many states have implemented new programs. But these measures are not being deployed at the scale and pace required to reduce growing risks, nor in a way that deals with the issue equitably. In Florida, political leaders adopted a new building code in 2002 to require greater housing safety measures, and that code was significantly revised in 2015 and is now scheduled for regular updates. However, there are serious concerns that Florida politicians may now be weakening the building code and its enforcement, amid lobbying from homebuilders and growing resistance to regulation. Furthermore, some of the requirements are posing affordability challenges, especially in condominiums, which are one of the few remaining homeownership options for seniors living on fixed incomes.
The Case for Housing Resilience Agencies
With our existing home insurance system, the costs of the damage from losses that private insurers cannot or will not insure are either borne by households—which can lead to individual financial ruin and contribute to systemic financial risk—or are socialized into reactive public disaster response programs.
If we want different outcomes, we must reimagine our disaster risk finance system so it reduces risk and provides protection fairly. That’s why we propose a new policy vision for home insurance in the United States: housing resilience agencies (HRAs). Given that insurance markets and much risk reduction and emergency management are regulated and managed at the state level, our policy proposal focuses on state- and territory-level implementation.
State HRAs would have two primary functions: to coordinate and oversee comprehensive disaster risk-reduction activities, and to provide public disaster insurance that offers equitable protection. An HRA in Florida, for example, might implement a roof-strengthening program in the historically Black Miami neighborhood of Liberty City so homes are better protected against hurricanes, and then provide affordable insurance for those same homes.
HRAs would coordinate and oversee comprehensive disaster risk reduction to limit damage before disasters strike. As such, HRAs would play a key role in land use policy by developing, implementing, and enforcing building codes for preventing construction of new housing and other infrastructure in high-risk areas, like easements or setbacks along coastal and other flood-prone areas. Such restrictions are essential to ensure that the rich don’t get to keep building in beautiful but risky areas and then demand disaster relief paid for with public money.
HRAs would also carry out holistic, community-oriented risk reduction and decarbonization for existing housing that would combine structural fortifying measures with energy efficiency updates. And they would institute comprehensive, science-based, equitable, and democratic mechanisms to proactively protect people at the greatest risk of disaster by supporting them in relocating to safer, affordable housing.
Even with all these risk-reduction measures, disaster insurance will still be necessary. And it is public disaster programs that provide the best way to spread the risk of unpreventable disasters and ensure equitable access to post-disaster recovery funds, all without the rent-seeking of private insurers. Coverage would be available for homeowners, renters, mobile-home dwellers, and affordable housing providers. Private insurers would still provide the standard policies that cover things like kitchen fires and burglaries, but the HRA would provide disaster insurance for all—a kind of Medicare-for-All system for home insurance. This separation of roles is essential so that private insurers don’t just cherry-pick the least risky policies, leaving public programs with the riskiest ones, or benefit from public investments in risk reduction without putting their own skin in the game. New Zealand’s “natural hazard” insurance program provides a model for this aspect of HRAs: the country’s public insurance program provides the first layer of residential land and building insurance for a range of hazards. All home insurance policyholders get coverage for those hazards, and they pay a levy based on the coverage amount, regardless of individual risk level.
HRAs would conduct catastrophe risk modeling and host a climate risk advisory council, both of which would provide essential data and expertise to back the agency’s decisions. A robust governing board with members from policymaking, civil society, and scientific communities would oversee the agency to ensure the input of key stakeholders, including tenant advocates, insurance industry regulators, affordable housing providers, environmental agency leadership, and tribal governments.
HRAs would shift away from today’s model of privatizing profits and socializing losses by defining premiums primarily by household income level, and by securing funding for the agency’s work from a variety of sources. Those financing sources would be identified based on analysis of which entities are most responsible for the current crisis and which would most benefit from stability in home insurance. In terms of responsibility, we suggest taxes or fees on fossil fuel companies and private insurers. Among the entities that would most benefit from insurance stabilization, mortgage lenders and real estate agencies top the list.
State HRAs could collaborate with one another to pool risks and resources; California, Oregon, and Washington, for example, could align to create a Western Region Housing Resilience Agency. HRAs could also diversify their risks and assist households in states that do not quickly adopt HRAs—like Florida or Texas, given their current political realities—by providing some policies out of state.
This HRA proposal is intentionally broad; each state has unique disaster risks and existing entities that would shape how HRAs are designed and implemented. But we hope it will inspire local organizers and policymakers to build out their own visions.
Even as we work to end fossil fuel production, we must confront the ways that climate change is affecting people’s everyday lives and economic futures. Public programs that provide fair and equitable disaster insurance protection, coupled with coordinated and comprehensive disaster risk reduction, are the best way to confront the growing housing safety and affordability crisis.
Moira Birss is a senior fellow with the Climate & Community Institute and an independent consultant on just transition policy.
MacKenzie Marcelin is the climate justice director with Florida Rising.
