Rising Home Insurance Costs Due to Increased Disaster Risk

The Facts -

Average Property Insurance Premium Increases

Average property insurance premiums have risen by over 30 percent since 2020, with wide variation by location. The highest increases are in areas with elevated natural disaster risks such as hurricanes or wildfires.

The link between disaster risk and premiums has strengthened over time. As natural disasters become more frequent, premiums are likely to continue rising.

Reinsurance Rates Driving Insurance Costs

According to Benjamin J. Keys and Philip Mulder in Property Insurance and Disaster Risk: New Evidence from Mortgage Escrow Data (NBER Working Paper 32579), the main factor behind higher prices is the rapid rise in reinsurance rates. Insurance companies buy reinsurance to protect against catastrophic losses.

The study analyzed data on escrow payments to understand insurance price drivers. By isolating insurance costs, researchers used over 47 million observations from 2014 to 2023.

Impact of Disaster Risk on Premiums

Between 2020 and 2023, average home insurance costs rose from $1,902 to $2,530 — a 13 percent rise adjusted for inflation. In high-risk ZIP codes, increases were much larger. Neither changes in home values nor state-specific regulations explain this finding. In 2018, a standard deviation increase in disaster risk in a ZIP code resulted in a premium hike of about $300. By 2023, it increased to nearly $500.

This rise in risk premiums coincides with a doubling of US property and casualty reinsurance costs from 2018 to 2023. Researchers term this a “reinsurance shock,” heavily influencing homeowners' insurance rates. In Florida, specialty insurers rely on reinsurance for nearly 40 percent of properties, while in Georgia, national carriers rely on reinsurers for less than 10 percent. This explains why premiums in coastal Florida counties rose by about $1,000 between 2018 and 2023, compared to less than $500 in similar Georgia counties.

Researchers attribute rising reinsurance rates to factors like population migration to risky areas, the end of low interest rates, and a “climate epiphany” among reinsurers assessing future risks. If extreme weather events become more frequent, the reinsurance shock may continue and strengthen.

The researchers thank the Wharton ESG Initiative’s Research Fund, ESG Initiative Climate Center, and the Research Sponsors of the Zell/Lurie Real Estate Center for support.

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