It was our dream house from the beginning, even

thought it was over our heads, but we just worked

really hard and made it become our own.

And I love it. I have my horses here.

I have a 100 pound tortoise that I saved.

So yeah, I just love it. It couldn't be more

perfect for us.

But Allstate, who insured Darlene's house for 18

years, recently sent her a non-renewal notice.

You can't just say after 18 years of being okay,

all of us today, you're not okay.

And that's it.

Home insurance companies are saying homes like

Darlene's are too risky to insure.

The nation's largest homeowners insurance

company, State Farm, has decided they won't accept

new applications for property in California.

Household names like State Farm, Allstate are pulling

out of these markets. They know the risk is just

too high to be actuarily sound for their business.

There are companies saying there are too many

buildings being destroyed by catastrophes, inflation

is making it too expensive to rebuild, and

they can't protect their investments any longer.

Losses are increasing related to climate risk.

As that risk increases, so does the cost of

insuring those assets that people have on hand.

But without homeowners insurance, many homeowners

can find themselves in big financial trouble.

I've been trying to find another insurance.

I had one company step up and said they'd do it for

$12,000 a year.

I go from $2,000 to $12,000.

Yeah, we would have to move.

There's no way.

But selling the home might not even be possible.

The moment that an individual gets a

non-renewal letter from the private insurance

market, they essentially lose 12% of their property

value.

It's not just California.

Louisiana and Florida are contending with similar

issues due to flood risk.

Why are so many American houses becoming

uninsurable, and what will it mean for the

economy when so many homes lose some of their

value? Darlene bought her house for $420,000 at the

behest of one of her best friends.

My girlfriend that I've known for close to 40

years. She's the one that brought me to this.

She lives two doors down and she said, 'you have to

buy this house.' So I had really no choice, but it

was the best thing we ever did.

It's just a three bedroom, two bath, and

it's only probably 1,700 square feet.

It's just perfect. I'm an outside person anyway.

So what's the most perfect is the outside.

I have a huge pasture for the horses and the

backyard had an artist come and she painted all

my animals on my back fence.

So when I go sit in my little girl area where we

have a little glass of wine, all my animals, even

the ones I've lost, are all painted on the side of

the barn. It's just beautiful.

Darlene and her husband still owe about $360,000

on their mortgage. Most mortgage lenders require

home insurance as a prerequisite for the loan,

and 58% of Americans hold mortgages on their homes.

You are allowed to live in your home without

insurance. That would be called self-insurance.

It depends on your financial situation,

whether or not that is a good or risky choice.

Insurance acts as a risk transfer tool.

So in order to make sure that that investment that

the bank is making with you, should something

happen, a catastrophe of natural catastrophe or man

made catastrophe, if it happens, the insurance

allows the home to recover.

The insurance business model works like this.

Companies assess the risk of damage happening to a

home and collect a premium accordingly.

By insuring properties with varying levels of

risk, they are able to spread the liability for

the riskiest assets among the whole group.

They reserve some funds to pay out claims and

invest others.

They typically make their profits via safely held

investments.

The insurance rate is a reflection of the risk.

Insurance rates are the effect of the risk, not

the cause. So the insurance company, in

order to operate its business as it should in a

profitable manner, needs to do what it can to get

those insurance rates to better reflect the risk.

Though insurers are saying climate change, inflation

and the regulatory environment have created a

situation where it's difficult to operate a

profitable business in some locations across the

country.

Private insurance companies are withdrawing

insurance in high risk areas due to climate risk,

and people are seeing their premiums increase in

the public market.

Every state has seen an increase, but 12 states

have seen their average premiums more than double.

The insurance is regulated at the state level.

Some researchers refer to aspects of the regulation

as premium suppression, which may result in

climate risk not being fully priced into the

market. For example, look at Prop 103.

Proposition 103, in the state of California was

something that was passed all the way back in the

'80s. In California, due to the regulatory

policies, essentially don't allow climate to be

included in the calculation of insurance

premiums, but they also set a limit on what the

increase can be year over year.

So the current limit is about 7%.

Anything is 7% or higher.

Has to go in front of the insurance commissioner.

It has to be approved in front of the board.

That can take a long time. If they can't charge

the adequate rate for the insurance, it just simply

doesn't make sense to do business there.

Which leaves people like Darlene with non-renewal

notices and the remainder of their mortgage debt in

their hands. Individual homeowners have a few

options if traditional homeowners insurance

becomes unavailable.

If you receive a non-renewal notice, there

are always options to have more insurance.

Depending on where you live, you can go into

residual markets.

Excess markets these markets will have a higher

cost to the insurance.

The rates are not at regulatory approved like

the standard market would be.

However, it is an option.

I've been trying to find another insurance.

No one will even step up to the plate.

I had one company step up and said they'd do it for

$12,000 a year.

I go from $2,000 to $12,000.

Yeah, we would have to move.

There's no way. We're retired.

Some states also have government-assisted

insurance options as well.

A social welfare program, if you will.

32 states and Washington, D.C.

have created insurers of last resort.

The state fair program in California that is the

state-run insurer of last resort for properties that

have extreme wildfire risk, cannot get insurance

in the private insurance market.

Darlene's insurance agent told her that the fair

plan would be very expensive in her case.

The guy that was my guy for 18 years said that he

won't even recommend or quote with a fair plan

because he says unfair plan.

$12,000 is not really a fair plan in my estimation

either, because he was quoting even the

deductibles, even on the $12,000 a year, the

deductibles were like 15 grand.

If this happens, I'm like, well, what's the

point of that?

In the case of California, just for example, the

average cost of a state fair plan premium is about

$3,200.

Quite honestly, government does not do insurance

well, and even more so it extends the burden to the

taxpayer, or it puts it back on the insurers who

are operating in the individual states.

Darlene's insurance agent said that any wildfire

protection tactics that she tries to do won't

impact the insurers decision not to renew her

coverage.

On paper, they said, I'm in a fire area and we have

a wooden fence that's connected to the house

that has been connected to the house forever, and

they said, that's a, you know, so they they did

note some things like that.

So that's why I called and said, well, if I just

we'll just change the fence out.

You know, I just paid like $7,000 to have trees

trimmed. If they need to be trimmed more, I could

do that. I mean, what can I do?

And he absolutely said there's nothing I can do.

Meanwhile, climate change keeps getting worse.

When I first moved up here 18 years ago, we certainly

didn't have fires that we had.

We didn't have any fires this last summer.

It was wonderful. But I mean, the smoke came in

pretty bad there for two to three years, I guess,

and that was like upsetting me.

Since 2009, there has been a 270% increase in the

cost of wildfires and a 335% increase in the

number of structures destroyed by wildfires.

And for every additional building destroyed, there

is an associated 1.9 additional non-renewal

notices issued from an insurance company.

Florida is a state where the largest insurance

company in the entire state now is the state-run

Citizens Insurance Agency. So today, the the

most at risk properties are on that insurer of

last resort, and it's become the largest insurer

of the state, which is crazy to think about.

All of the risks that exist in the state is on

one single insurance company's role.

And if there were to be some issue with that, now

the state has to step in.

Communities may need to rethink how they use

insurance to account for climate risk.

If you look at some other states who are beginning

to look at ways that they can take a more collective

and communal approach to risk management, you're

seeing very different circumstances.

I think the state of Alabama is a very good

example of a state where the government and

policymakers have embraced the understanding

of what is causing this increased risk?

How can we help better manage that risk?

And they're allowing consumers to take grants

up to $40,000 for a government grant to make

yourselves more resilient. And we really

need to think about the behaviors in terms of

where we're developing, how we're living, so that

as a community, we can make it more resilient.

But in the meantime, all of this is going to have

big implications for the U.S.

real estate market and therefore the U.S.

economy.

The insurance mechanism is the first to really price

in climate.

How would I even sell my house if I can't get

insurance? How is the next person gonna, you

know, they're not going to want, they can't buy a

house if they can't get insurance. Well, I guess

unless they're coming in cash.

The insurance sector was 2.6% of U.S.

GDP in 2022.

Housing in general accounts for around 15% to

18% of the U.S.

GDP. As the insurance market starts to price in

climate risk, a good portion of the U.S.

economy will be impacted.

So you need insurance to have economic growth.

So hopefully we're beginning to see the

policy making community in the state of California

understand that some changes need to take

place. Insurers need to be able to charge for

risks like inflation, for risks like increased