Forsake Some, Fleece the Rest

As property insurers respond, belatedly, to the reality of climate change, they’re relying on proprietary, black-box projections of risk to curtail coverage and mark up premiums in neighborhoods across the United States. While it’s true that extreme weather risks and damages are growing in general, that shouldn’t entitle insurers to indiscriminately impose double-digit rate hikes. Insurers possess opaque, multiyear projections of climate risk and yet they reprice or cancel policies annually with little transparency. As long as the industry’s fiercely guarded information asymmetry goes unchallenged, it’s hard not to conclude that insurers are taking advantage of a turbulent situation to fleece consumers.

Increasingly frequent and severe wildfires, hurricanes, convective storms, and other weather-related disasters are clear indicators of the deadly—and expensive—havoc that the climate crisis is already wreaking today, with more ruinous consequences on the horizon. Even so, the United States’ property and casualty (P&C) insurance industry, which includes home and auto as well as commercial lines, just had a banner year. The industry’s annual profits hit an all-time high of $167 billion in 2024, up 91% from 2023 ($87 billion) and 330% from 2022 ($39 billion). The industry cleared $25 billion in underwriting profits in 2024, but most of its income comes from returns on investment, including in fossil fuels—the primary source of the greenhouse gas emissions unleashing ever more destructive weather.

As Warren Buffett explained to Berkshire Hathaway shareholders 15 years ago, the fact that insurers collect premiums up front—before having to pay claims—allows them to profitably invest this so-called “float.” Put differently, insurers use large sums of policyholders’ money as interest-free capital. The P&C industry’s “successful” 2024—the 23rd consecutive year it turned a profit—was “made possible largely due to sizeable rate increases,” according to the National Association of Insurance Commissioners (NAIC). The industry’s investment profits reflect rising asset prices, and Wall Street had a great year in 2024, with its main stock indices seeing strong growth. P&C insurers certainly benefited from having amassed and invested billions of dollars in additional premiums during the bull market.

The NAIC added that it’s “unclear if the increases will be necessary or sustainable in 2025.” Insurers did, in fact, continue to spike premiums throughout the year. They were aided in this effort by artificial intelligence. A recent report from McKinsey & Company stated that the insurance industry’s growing use of AI has enabled “a 10 to 15 percent increase in premium growth.” Some, such as legal scholars Omri Ben-Shahar and Kyle Logue, claim that higher prices are necessary to effectively communicate risks and incentivize individuals to move. But the truth is that preventing, mitigating, and responding to climate disasters will require collective interventions including decarbonization, adaptive planning, and resilient infrastructure. Premiums can signal where society should direct resources, but where and how we live is too important a question to leave up to private insurers.

Premiums and Nonrenewals on the Rise

Average home insurance premiums in the United States increased by 24% from December 2021 to August 2024, 11% more than the overall rate of inflation during the same period. According to the Consumer Federation of America, a typical U.S. homeowner (someone with a mid-range credit score and a house with a $350,000 replacement value) paid $3,303 to insure their home in 2024, which is $648 more than they paid three years earlier. During that period, annual home insurance prices increased in 95% of the country’s zip codes; in one-third of them, premiums rose by 30% or more. Collectively, insurers got $21 billion more premium revenue from homeowners in 2024 than they did in 2021.

That premium spike is closely mirrored by the 27% growth in executive compensation at the top 10 home and auto insurance companies between 2023 and 2024. A profitability boom for the few and an affordability crisis for the many, it turns out, are two sides of the same coin.

While raking in record profits and sitting on a $1.1 trillion surplus, the industry blames skyrocketing home insurance prices on multiple factors: increasingly common and severe extreme weather due to climate change; weather events becoming more expensive because of urbanization patterns and rising rebuilding costs; the soaring cost of reinsurance (insurance for insurers); and so-called “social inflation,” an industry-coined euphemism for rising litigation costs.

How Insurers Make Money

That the P&C industry is doing well might come as a surprise to many. The media tend to repeat the industry’s sob story, which goes like this: As climate change worsens, insurers are losing money around the country and that’s why they’re jettisoning particularly vulnerable areas and raising premiums everywhere else.

But what goes unmentioned in this narrative, which focuses on underwriting losses, is that the industry’s investment income is growing. Even the discourse around underwriting losses is misleading. In its 2025 report on U.S. homeowners insurance markets, the Treasury Department’s Federal Insurance Office (FIO) calculated the “paid loss ratio”—defined as “the amount insurers have paid on claims to or on behalf of policyholders relative to premiums received”—for 25,593 zip codes from 2018 to 2022.

The data show that in over 90% of zip codes with data, premium revenue exceeded payouts every year from 2018 to 2022. In other words, underwriting has been lucrative in most of the country. The industry, however, conceals its underwriting gains by lumping underwriting costs and overhead expenses together into what it calls a “combined loss ratio.” Some of those expenses—including ”ultimate losses,” which are claims that aren’t paid within the policy year, and payroll—are unavoidable. But unsurprisingly, the combined figure is higher than the FIO’s more straightforward “paid loss ratio” metric, enabling insurers to claim that they’re barely scraping by or even bleeding money.

Regardless of that accounting trick, underwriting is not the principal way insurers make money anyway. When underwriting is profitable, a company is effectively playing with free money provided by shareholders. When underwriting is unprofitable, that’s the fee a company pays to invest their “float,” or unassigned premium revenue. Being clear-eyed about the fact that insurance companies are institutional investors first and foremost (recall how AIG’s bets on mortgage-backed securities contributed to the 2008 global financial crisis) makes the industry’s recent moves more legible. Abandoning highly vulnerable communities enables insurers to remove liabilities from their balance sheets, thus improving loss ratios, and raising premiums gives them more money to invest in financial markets.

Notably, the P&C industry’s recent actions fit a well-established pattern called “the insurance cycle”: When low interest rates cause a decline in investment returns, insurers raise premiums and reduce coverage. They typically blame this “hard market” on rising litigation costs and argue that in order to lower premiums and sell more policies, they need “tort reform” (i.e., to limit consumers’ access to the justice system) or other forms of deregulation.

From 2020 to 2022, a “perfect storm” of rock-bottom interest rates and rising costs—from claims and the supply chain crunch—hammered P&C insurers, Consumer Watchdog executive director Carmen Balber told me. That’s when they ramped up efforts to curb coverage and spike premiums.

“The insurance industry knew for a long time the climate was changing and didn’t do anything about it,” said Balber. “But they didn’t start precipitously dumping people and raising prices until the hard market hit? I don’t think it’s a coincidence.”

Interest rates subsequently rose—and investment income recovered accordingly. Typically, that heralds the return of a “soft market” in which insurers write more policies so they can have more premium revenue to invest in a high-interest-rate environment. It’s possible that, due to mounting climate risks, large P&C insurers may not seek to sell more coverage as they normally would. But they certainly appear to be trying to maximize premium revenue nonetheless. Rather than through expanded sales, it’s happening through price hikes and regulatory rollbacks aimed at making it easier for insurers to drop inconvenient policyholders. Increasing access to investable cash and decreasing exposure to risk remains the goal.

With the exception of “social inflation”—a term the industry invented to manufacture consent for raising premiums and restricting policyholders’ legal rights—the factors cited by the industry are evident. Weather catastrophes are growing in frequency and intensity due to past and ongoing fossil fuel pollution (and the Trump administration’s assault on disaster mitigation and climate adaptation is likely to compound these damages). Reconstruction costs have been trending upward, a reality exacerbated by President Donald Trump’s ill-advised trade wars and his cruel crackdown on immigrants. And reinsurers, operating in a highly concentrated and unregulated global market, nearly doubled their rates from 2018 to 2024 (though prices moderated in 2025 and reinsurance brokers expect them to soften further in 2026).

But this doesn’t mean the premium hikes endured by millions of households are justified. My home insurer, Safeco, recently raised my annual premium by 42% despite no discernible change in my neighborhood’s one-year climate risk. Consumer Reports compiled a repository containing dozens of stories about huge rate increases that are either unexplained or attributed to spiraling damages in higher-risk locales.

Pooling various levels of risk is inherent to good insurance design, so cost-sharing across space is reasonable. However, insurers themselves are increasingly withdrawing from more environmentally hazardous places. A growing number of firms have been restricting the sale of new policies in disaster-prone areas, sometimes deserting entire states at once. This trend began with a few high-profile cases: Allstate and State Farm stopped writing new policies in California in 2022 and 2023, respectively, citing wildfire risk; Farmers did the same in Florida in 2023, citing hurricane exposure. That same year, AIG made a similar move affecting hundreds of zip codes in more than a dozen states. Since then, it has become increasingly common to hear insurers point to ballooning climate risks to justify casting some communities aside and raising rates in others.

Insurers haven’t just halted the sale of new policies in particularly risky geographies. They’ve found ways to drop long-paying customers, too. Increasingly, insurers are “nonrenewing” policies, an all-too-easy step for them to take at the end of every 12-month coverage period. In December 2024, then-Senate Budget Committee Chair Sheldon Whitehouse (D-RI) published a report on the climate-driven home insurance crisis, the culmination of a monthslong investigation. It included data showing that 1.9 million policies were nonrenewed between 2018 and 2023. (My colleague Carly Fabian and I mapped the data at the Revolving Door Project website; see “Mapping the Home Insurance Crisis,” April 24, 2025.) The national average nonrenewal rate climbed from 0.8% in 2018 to 1.06% in 2023, a 32% increase. During those five years, the statewide average nonrenewal rate grew in 35 states. Over 200 counties—across 30 states—saw their nonrenewal rates increase by 400% or more.

The ongoing surge in nonrenewals creates additional opportunities for price gouging. As more insurers retreat from certain markets, the firms that remain have greater market power and can charge more. Meanwhile, jilted consumers have little choice but to accept the higher premiums on offer (or forego insurance altogether, risking financial ruin).

Increasingly, the home insurance market is being bifurcated between “low-risk” consumers who can still obtain coverage in the private market and “high-risk” consumers who are forced to turn to less regulated “surplus lines” provided by non-admitted carriers or state-created insurers of last resort, sometimes referred to as “residual markets.” Since 2018, participation in last-resort programs, often called Fair Access to Insurance Requirements (FAIR) Plans, has more than doubled, with growth concentrated in California, Florida, and Louisiana. In the roughly three dozen jurisdictions where residual markets exist, private insurers are required to financially support last-resort plans in proportion to their private-market share. (This arrangement incentivizes further retreat from the private market, since it lowers a company’s FAIR Plan obligations.)

Despite being established through state legislation, insurers of last resort are hardly “state-run.” The majority of FAIR Plans are governed by boards that are dominated by insurance industry representatives, and most have statutory requirements to avoid competition with the private market. This means that residual market customers tend to pay more for less coverage. FAIR Plans now safeguard more than $1 trillion in high-risk properties nationwide, eliciting concerns about their ability to pay out claims in the wake of a major catastrophe.

State regulators have enabled FAIR Plans to recoup costs by levying assessments or surcharges on residual market policyholders or on all property insurers operating in the state. In multiple states, private insurers can pass along those costs to all consumers, including non-FAIR Plan policyholders, in the form of higher premiums.

Since Hurricane Ian devastated Florida in 2022, lawmakers there have been trying to reduce the financial exposure of the state’s insurer of last resort, Citizens Property Insurance Corporation, by “depopulating” its rolls and transferring policyholders back into the private home insurance market. To do that, industry-bankrolled Florida Republicans overhauled the state’s insurance laws, making it harder for consumers to sue insurers and showering companies with other giveaways. Those deregulatory moves have attracted a handful of small, undercapitalized carriers—firms rubber stamped by Demotech, a rating company with a history of inflating the financial stability of multiple insurers. Meanwhile, Floridians are stuck paying some of the highest rates in the country.

Pricing Climate Risk Does Not Mitigate It

Whether someone’s home insurance policy is renewed or not, they’re almost certainly staring down a substantial premium hike—either from their existing insurer or from the new one they were forced to find. The tumultuous context outlined above (i.e., mounting climate turmoil and inflationary pressure) has given companies a perfect excuse to increase rates beyond what’s warranted by cost pressures, sometimes with support from industry-friendly state regulators. Insurers are effectively engaged in profiteering—using real and projected cost shocks as an opportunity to ditch potentially expensive customers and overcharge others.

Some might counter that the business of insurance is to assess and price risk, so insurers have no choice but to raise premiums as climate chaos worsens. It’s true that climate-related economic losses have been rising globally and domestically. In the United States alone, insured losses from catastrophic weather increased from an estimated $92 billion in 2021 to $113 billion in 2024, a jump of 23%. Through the first three quarters of 2025, insured losses from extreme weather events in the United States again surpassed $100 billion, though there’s a chance of a year-over-year decrease. Even if that happens, don’t expect premiums to go down.

For multiple reasons, premium prices are distorted in the United States, meaning that home insurance rates don’t always reflect the geography of risk. For one thing, state-based variation in rate regulation means that insurers charge higher premiums in the states where less stringent review processes make it easier to do so. Insurers often complain that higher regulation states are preventing them from charging accurate (i.e., higher) prices, sometimes justifying underwriting pullbacks or threatening further ones on these grounds—an attempt to bully officials into accepting deregulation or premium hikes.

In addition, a recent analysis from the Consumer Federation of America and the Climate and Community Institute showed that it’s more expensive to have a low credit score than to live in an area with high disaster risk. According to the study, a typical homeowner with a low credit score pays roughly $2,000, or 99%, more for home insurance, on average, than their counterpart with a high credit score. Someone with a 630 FICO score living in one of the safest parts of the country (in the 1st percentile of disaster risk) and someone with an 820 FICO score living in a much riskier area (71st percentile) would both pay about $3,000 for their annual home insurance premium. This credit penalty—only prohibited in California, Massachusetts, and Maryland—underscores the fallacy of relying on price signals to mitigate disaster risk.

Research finds that “risk-reflective pricing” is ineffective at “changing where or how people live.” Moving is difficult, particularly in a country where affordable housing is hard to secure. Mushrooming policy cancellations due to nonpayment suggest that many more people will join the 6.1 million households that already lack home insurance, increasing the risks of a climate-fueled property crash and financial meltdown. Moreover, empowering private insurers to dictate residential decisions will not result in the comprehensive disaster risk-reduction measures we so desperately need, from a fossil-fuel phaseout to improved land-use planning and transformative investments in the built environment (including new housing in safer areas).

Ultimately, consumers today find themselves at the mercy of companies that are unfairly operating on multiple timelines with virtually no transparency. Insurers harness multiyear climate risk projections not subject to public scrutiny while benefitting from one-year contracts that facilitate annual repricing or abandonment. The industry’s opacity and willingness to treat people as disposable is bad enough. It’s even more frustrating when considering that P&C insurers continue to make billions from underwriting coal, oil, and gas projects and from investing over half a trillion dollars in fossil fuel-related assets. Those actions are worsening the climate risks that insurers now cite to justify nonrenewals and rate hikes.

Insurers Are Profiting from a Crisis They Helped Create

After turning a blind eye to climate risk for decades, P&C insurers are forsaking areas with especially pronounced environmental hazards and hiking rates nationwide. They’re also increasingly denying claims, delaying payouts, and/or shortchanging policyholders; surplus line providers are engaging in such abusive tactics with even greater regularity.

Here we can draw a parallel to the profit-driven inflation that began in 2021. The pandemic-era cost-of-living crisis was driven to a significant degree by corporations exploiting exogenous shocks to pad their bottom lines at the expense of working-class households. The spread of Covid-19, Russia’s invasion of Ukraine, and climate breakdown disrupted international supply chains. Powerful firms, strengthened by earlier rounds of consolidation, used those crises as a pretext to impose price hikes that outpaced the rising costs of doing business. (Groundwork Collaborative documented executives bragging about this on investor calls.)

Adding insult to injury, corporations played a key role in creating the very situation they capitalized on; the fragile supply chains and concentrated markets that enabled widespread profiteering in recent years are products of neoliberal economic policies long sought by corporate America. In the same vein, P&C insurers have facilitated, and continue to facilitate, more planet-destabilizing pollution by underwriting and investing in fossil fuel expansion.

Insurers aren’t making money hand-over-fist despite the climate crisis; the crisis is giving them cover to offload risk and inflate prices across the board. By minimizing their liabilities and augmenting their “float” (cash they get upfront from policyholders), insurers are juicing their investment gains (the real source of the industry’s profits). In his latest letter to shareholders, Buffett acknowledges the dangers of climate change, but he notes that 2024 was still profitable, and predicts that P&C insurance will continue to be lucrative as long as insurers can continue writing one-year, or potentially even shorter, policies.

A Crisis for Consumers, Not Insurers

The climate-driven home insurance crisis is already creating hardship for housing consumers of all kinds, including oft-neglected renters. As home insurance costs climb, prospective homebuyers and existing residents are being priced out or forced to reduce their coverage. Landlords are passing costs onto tenants, and soaring premiums are making it harder for affordable housing developers to build new units.

The declining affordability and availability of home insurance, which comes amid a preexisting and worsening housing emergency, threatens to upend mortgage markets and devalue significant chunks of real estate. Already, climbing premiums are eroding home values in disaster-prone areas, and foreclosure starts (which is the first step in the foreclosure process), driven in part by high insurance costs, are on the rise. Should a foreclosure wave gain steam, it would undermine municipal budgets, and it may well trigger a broader financial crash capable of causing widespread economic harm.

Some insurance industry players seem to appreciate how the climate crisis jeopardizes macroeconomic stability in the medium- and long-run. At present, however, many P&C insurers appear content to shed high-risk households and jack up rates. From their perspective, the current moment is a short-term profit-maximization opportunity.

Kenny Stancil is a senior researcher at the Revolving Door Project with broad interests in the political economy of inequality and just transitions to an egalitarian, democratic, and sustainable society.

This article is part of a new collaboration between Dollars & Sense and the Revolving Door Project (revolvingdoorproject.org), a research and watchdog group that scrutinizes executive branch appointees to ensure they use their office to serve the broad public interest, rather than to entrench corporate power or seek personal advancement and monitors how corporate and billionaire influence distorts coverage of economic issues in the media, law, and policymaking.

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