Housing expert predicts major insurance risk for homeowners soon

Climate risk may play a bigger role in the home insurance industry in the future.

Mar 6, 2025 - 12:36

Housing expert predicts major insurance risk for homeowners soon

Home insurance is a relatively new product, with the first modern U.S. homeowner insurance policy issued in the mid-1950s. Since then, it has become a necessity for homeownership, and most lenders require it when approving mortgage loans.

However, premiums are on the rise, and some homeowners find their policies cover less than they used to, leaving them vulnerable to damage and costs.

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As extreme weather patterns have increased over the past few decades, the insurance industry has taken on more risk — and costs —reducing profitability for many firms and prompting reduced coverage for homeowners.

We spoke with Tia Boatman-Patterson, former Housing Director at the White House Office of Management and Budget and current President and CEO of the California Community Reinvestment Corporation, about the impacts of the recent California wildfires, how insurance policies must adapt to climate risk, and the best ways for homeowners to proactively safeguard their homes against climate change.

A couple celebrates the purchase of a new house. Home insurance premiums have been rising, raising homeownership costs for first-time buyers. However, increased climate risk poses a challenge for insurers, often leaving homeowners on the hook to cover expenses.
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Home insurance policies must be updated to factor in climate risk and prevention

The frequency and intensity of weather patterns are increasing, damaging a record number of homes each year. Housing damage drives up costs for insurers, which are passed on to homeowners through their monthly insurance premiums.

According to Progressive Insurance, the average home insurance policy costs between $1,191 and $2,136 annually, averaging $139 per month. However, the Brookings Institute found that home insurance premiums increased 30% between 2020 and 2023 alone.

Insurers must cover increasingly frequent hurricanes, floods, and wildfires, prompting many to leave high-risk areas and reduce or even terminate policies for risky properties.

In January, the devastating wildfires in southern California left $40 billion worth of real estate at risk of destruction but also showcased the effectiveness of fortifying homes with fire protection measures.

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"During the Altadena fires, houses with newer roofs with the screens that didn't allow the embers to get into the screens could be right next door to a home that didn't have those," Boatman-Patterson said. "The house next door would be completely burned down, but those houses with fire retardant stucco and screens had taken on that kind of fire protection because they had either been upgraded or built to different standards."

She suggests that insurance companies reduce policy premiums for homeowners upgrading their homes to prevent weather-related damage as a method of reducing the cost of insuring high-risk areas.

"Updating insurance methodology on how risk is calculated and ensuring that folks taking on climate resiliency and preventative measures, because they know the disaster will come.

"If folks are upgrading their home to mitigate climate risks, should not their insurance come down? Right now, insurance doesn't account for those kinds of things."

Home insurance reform may require government support

According to NOAA, climate-related housing damage totaled $182.7 billion across 27 natural disasters in 2024.

If homeowners invest in measures to reduce weather damage—such as upgrading the home exterior with fire-resistant materials or installing hurricane shutters—it could minimize the overwhelming costs the home insurance industry faces from climate change.

However, Boatman-Patterson highlights that this overhaul would require industry-wide reform, likely backed by federal legislation.

"For so long, we didn't want to talk about climate resiliency and disaster recovery. But it's all tied together — you can't talk about disaster recovery without talking about climate resiliency and some of those things you should do on the front end to mitigate the things that will happen with disaster recovery," she explained.

"It takes political will to have those hard conversations. But when you build back, build back better. Build it back and include those features to mitigate for the next event."

The Congressional Budget Office has proposed that a public-private insurance program with risk-sharing could be a potential climate-risk solution. Such a program would offer greater economic resiliency and reduce the federal government's need for disaster relief after natural disasters.