Why are homeowners insurance rates so high?

By now, you’ve probably heard that it’s more difficult to get homeowners insurance in places like Florida and California than it is elsewhere in the U.S.. They’re the places most prone to natural disasters like hurricanes and earthquakes—and serve as a stark reminder of the effects climate change is having on our daily lives.

But it’s not just these two coastal states that should be concerned about climate change and subsequent challenges with finding affordable homeowners insurance—or any at all. Indeed, more than one in four American homeowners with insurance worry that their homes will become uninsurable in 2024, according to results from a ValuePenguin survey of 2,035 U.S. consumers conducted in February. What’s more, 72% of home insurance policyholders reported rate hikes in 2023, with more than a third of them saying their premiums increased 5% to 9.99%. Already, more than one third of policyholders say they’re struggling to afford their premiums this year.

Climate change is to thank for the rising cost in homeowners insurance premiums—and for making homes across the U.S. completely uninsurable, experts agree.

“The rise in extreme weather events like hurricanes, wildfires, and floods—all intensified by climate change—has led to more frequent and severe damages to properties,” Gregg Barrett, CEO of property and casualty insurance group Waterstreet Company, tells Fortune. “As a result, insurance companies are adjusting their risk assessments and pricing models to account for these heightened risks.”

The risk is so high in some states that homeowners insurance rates have completely skyrocketed. Take California, where insurance costs in certain communities have surged by more than 300% between 2020 and 2023 because of severe wildfire and flooding damage. That’s “particularly burdensome” for low-income and middle-class homeowners who are dependent on mortgages, Barrett says. 

Currently, the average cost of homeowners insurance is $126 per month, or $1,516 per year, according to ValuePenguin, a LendingTree subsidiary. Among the states with the highest monthly insurance rates are Colorado ($242), Nebraska ($213), Texas ($211), Kansas ($189), Florida ($184), and California ($153).

These high prices might compel homeowners “to sell their homes and move to areas with lower insurance premiums as costs continue to rise,” Barrett says. “This situation can also have a profound impact on the overall community, potentially leading to demographic shifts and affecting local economies.”

What makes a home ‘uninsurable’?

Essentially, a home becomes uninsurable when the risk of a natural disaster like flooding or wildfires becomes too high. This often happens in areas that are “too close to the water” or are in earthquake, hurricane, or tornado zones, Michael Silverman, founder and president of Silver Lining Insurance Agency, tells Fortune. Age and condition of a home can also affect homeowners insurance eligibility. 

While insurance is pretty much a given for most homeowners, it’s actually not universally required by law. However, “most homeowners see it as an indispensable form of protection,” according to David Pope Insurance, which offers home, life, auto, and commercial insurance. 

Many homes in Southern California, for example, are uninsurable, “mostly due to the proliferation of wildfires and mudslides in the region,” Maureen McDermut, a realtor with Sotheby’s International in Montecito (a Santa Barbara town), tells Fortune. Concerns about climate change in California have even gotten so bad State Farm declared the entire state as uninsurable, McDermut says.

While California is a prime example of the uninsurable housing market, other regions are struggling too—particularly Florida, Texas, and the entire mid-Atlantic region (which includes Delaware, Washington, D.C., Maryland, New Jersey, New York, Pennsylvania, Virginia, and West Virginia). Hurricanes in these states “are making more insurance companies refuse home insurance coverage in those areas,” McDermut says. 

Although “climate change disasters are the primary driver of homes becoming uninsurable, rising construction costs have also contributed by making claims more expensive for insurers,” Divya Sangameshwar, a LendingTree spokesperson, tells Fortune. “In fact, since 2020, residential building costs have risen by almost 28%, and labor costs alone jumped nearly 12%.”

Even still, buyers continue purchasing homes in these “high-risk areas,” Sangameshwar says. They are “taking advantage of lower costs, but they aren’t factoring the cost of insurance and future risk into their calculations,” she added.

It’s a new reality that homebuyers will have to get used to: Buy a house with a high home insurance rate or no insurance at all, or drop out of the housing market completely.

“For home buyers that live in these regions, they have to simply accept the fact that homeowner policies may either not be available or may become almost unaffordable,” McDermut says. “Buyers are already struggling against higher mortgage interest rates—and with insurance becoming unaffordable or unavailable, it can truly push some to consider not purchasing homes.”