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A PUBLIC MODEL FOR HOME INSURANCE  
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Moira Birss, MacKenzie Marcelin
January 17, 2025
Dissent
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_ We must reimagine our disaster risk finance system so it reduces
exposure and provides protection fairly. _

A house in Manasota Key, Florida, after the destruction brought by
Hurricane Milton, Joe Raedle/Getty Images

 

With every extreme weather event, housing is damaged and belongings
are lost. Insurance is supposed to be the safety net that helps people
to recover and restart their lives. But as major disasters like
hurricanes, wildfires, and hailstorms increase in frequency and
severity thanks to climate change, more insurance companies are
cutting back on policies, jacking up premium rates, or refusing to
cover whole areas of the country. This change is leaving people who
live in affected homes—including everything from single-family
houses to multifamily rental buildings—facing financial hardship and
even homelessness, among other ruinous consequences.

While this mounting crisis is happening across the country, from
California and Iowa to Colorado and Minnesota, perhaps no state has
been more affected than Florida, due primarily to its significant
exposure to catastrophic hurricanes. Although hurricanes are becoming
increasingly severe with climate change, they are not a new
phenomenon. Insurance markets crashed after Hurricane Andrew in 1992;
ever since, the state has tried to seduce insurance companies with
deregulation and financial incentives.

But shoring up profits for insurance companies is not the answer to
this crisis. Instead, the home disaster system in the United States
should be redesigned to prioritize accessible and affordable recovery
for households affected by major disasters. To do this, states should
establish agencies that both reduce the damage caused by disasters and
provide public disaster insurance for all households to help them
recover when unpreventable catastrophes do strike.

WHAT IS DISASTER INSURANCE?

Home insurance is meant to ensure that people can maintain safe
residences after individual and widespread emergencies. Disaster
insurance (also called catastrophe insurance), a subset of property
insurance, refers specifically to insurance coverage for major events
causing widespread damage to multiple properties at once, from
hurricanes to terrorist attacks. Like other forms of insurance, home
insurance operates by defining responsibility for damages, determining
the legitimacy of claims, assigning accountability, and providing
compensation for losses.

Home insurance is not government mandated in the United States, but
mortgage lenders typically require homeowners to purchase a minimum
level of insurance as a condition of approving and maintaining a
mortgage. If a homeowner does not purchase this minimum, the lender
will do it for them, but this “force-placed” coverage only
provides a payout to the lender to recoup their investment in case of
a home-leveling disaster. The financers of both market-rate and
affordable rental housing buildings also typically require building
owners to hold multiple types of insurance policies. Beyond these
requirements, households often seek to insure their homes and personal
items against everyday emergencies and major disasters.

Because of these insurance requirements, most of us, whether we are
homeowners or renters, are tied to the for-profit insurance industry.
And as the climate crisis leads to greater unpredictability for
insurance markets, this connection is exposing U.S. households to
greater financial vulnerability. The U.S. disaster insurance industry
currently serves as both a mechanism of collective protection and a
vehicle for profit-making; it is expected to both support residents
and housing finance institutions. If insurance becomes too expensive
to maintain for either side, this fragile bargain could unravel,
leading real estate markets to crumble and forcing homeowners to walk
away from their mortgages despite years of investment. Such trends
could spiral into a broader economic crisis, not unlike the one we
experienced with the subprime bubble.

Renters, a population particularly exploited by financial systems
looking to offload risk, face a related set of problems. Evictions and
rent increases tend to follow climate-related disasters, and recovery
assistance for renters is much lower and more difficult to access than
aid provided for homeowners. Insurance costs for the buildings tenants
live in are increasing, especially in the southeastern United States,
and landlords have the power to pass these costs onto tenants in
places where rent controls are limited or nonexistent. Meanwhile,
affordable housing developers are already reporting the cancellation
of new projects because they cannot afford today’s sky-high
insurance rates.

FLORIDA’S MARKET FAILURES

In Florida, homeowners’ insurance costs have spiked amid the near-
collapse of the state’s home insurance market following a series of
high-profile hurricanes in recent decades. More than a dozen insurance
companies have exited the Florida market in recent years, and just
since 2022 at least six insurers in the state have become
insolvent—leaving homeowners scrambling to find new providers,
typically at drastically increased prices.

Florida’s political leadership has attempted to address these
problems with market deregulation and financial incentives. Several
public institutions also help to prop up the private insurance market,
including Citizens Property Insurance Corporation, a nonprofit public
company created as an insurer of last resort in 2002, and the Florida
Insurance Guaranty Association, a state-run fund that pays
policyholder claims in the event that an insurer goes bankrupt.

Despite these efforts, Florida is having trouble retaining large,
national, diversified insurance companies, which are more financially
stable and often more affordable. The private insurance companies
still operating in Florida are primarily newer, smaller companies that
conduct almost all of their business in Florida; some have an even
narrower focus, such as one company that primarily sells wind-only
policies in South Florida.

Larger insurers typically write policies across multiple states and
types of disasters. Spreading and pooling risks in this way limits
exposure to a single peril or regional loss event, like a damaging
Gulf Coast hurricane. Without this ability to spread risk, small
insurers are much more dependent on transferring financial risk to
other entities, like reinsurers (insurers for insurers), the costs of
which they then pass on to consumers. And consumers in Florida are
paying the price: homeowners insurance rates in the state are the
highest in the nation, averaging over $10,000 per household per year.
In some counties, people are paying over 5 percent of their income on
policies with Citizens.

Despite these problems, Florida’s politicians have continued to
prioritize creating favorable regulatory conditions for private
insurers. One way they’ve done this is to impose a
“depopulation” mandate on Citizens, meaning it must force some of
its current policyholders off its plans and onto private plans, even
if those plans are more expensive. Despite this, Citizens is now the
largest insurance company in the state, providing coverage to more
than one out of every ten home-owning households.

Policymakers in the state have responded with measures to raise
Citizens’ premium rates and further encourage depopulation. These
measures mean not only that Citizens rates are going up in several
parts of the state—one analysis found that Citizens will have to
raise rates in Miami-Dade County by 80 percent in order to comply with
a state law that forbids it from competing with private insurers—but
also that private insurers can easily obtain a swath of new customers
who will have to pay higher rates. Meanwhile, with Citizens now
responsible for a tenth of the states’ policies, it may not have
enough capital to fully pay out claims after major disasters.

To address this issue, state leaders have permitted Citizens to levy
emergency fees on nearly all statewide property insurance policies for
as long as is required to repay debt. This means that a serious
financial loss for Citizens and other Florida insurers could result in
additional fees for residents already dealing with a catastrophe. The
Florida Hurricane Catastrophe Fund (a state-run provider of insurance
for insurers) and the Florida Insurance Guaranty Association are
backed up by yet more emergency fees on policyholders, meaning they
could face multiple stacking fees during a devastating hurricane
season.

RISK SHIFTS RATHER THAN RISK REDUCTIONS

The chaos in Florida’s home insurance markets makes clear that state
policies to save private insurance are not making things easier for
regular people. The existing approach shifts around the financial
risks of major disasters to protect industry profits, rather than
seeking to reduce financial risks to households and physical risks to
homes. To the extent that the insurance industry does engage in risk
reduction, it is channeled through so-called “risk-based pricing”:
setting premium prices based on risk level to encourage people to
reduce risks themselves, through actions like moving to a new location
or installing a new roof. But people make decisions about where to
live for all kinds of reasons, like proximity to schools, family, or
jobs, and many households cannot afford to pay up front for major
retrofits. Moreover, many needed risk-reduction measures, like sewer
upgrades or neighborhood wildfire prevention, can’t be instituted by
individuals.

In addition, those with more power and resources can distort price
signals. The rich can pay extremely high insurance costs, or even go
without insurance since they can afford to rebuild. Private housing
developers, for their part, don’t have to worry about insurance
beyond the construction phase, so they may have few qualms about
building in risky areas. Those buying or renting those properties may
reasonably assume that the housing is safe; when it turns out that
it’s in a flood zone, those who “chose” to live there are left
in the lurch.

Physical risk reduction measures can save money—estimates suggest as
much as $13 for every $1 invested—and many states have implemented
new programs. But these measures are not being deployed at the scale
and pace required to reduce growing risks, nor in a way that deals
with the issue equitably. In Florida, political leaders adopted a new
building code in 2002 to require greater housing safety measures, and
that code was significantly revised in 2015 and is now scheduled for
regular updates. However, there are serious concerns that Florida
politicians may now be weakening the building code and its
enforcement, amid lobbying from homebuilders and growing resistance to
regulation. Furthermore, some of the requirements are posing
affordability challenges, especially in condominiums, which are one of
the few remaining homeownership options for seniors living on fixed
incomes.

THE CASE FOR HOUSING RESILIENCE AGENCIES

With our existing home insurance system, the costs of the damage from
losses that private insurers cannot or will not insure are either
borne by households—which can lead to individual financial ruin and
contribute to systemic financial risk—or are socialized into
reactive public disaster response programs.

If we want different outcomes, we must reimagine our disaster risk
finance system so it reduces risk and provides protection fairly.
That’s why we propose a new policy vision for home insurance in the
United States: housing resilience agencies (HRAs). Given that
insurance markets and much risk reduction and emergency management are
regulated and managed at the state level, our policy proposal focuses
on state- and territory-level implementation.

State HRAs would have two primary functions: to coordinate and oversee
comprehensive disaster risk-reduction activities, and to provide
public disaster insurance that offers equitable protection. An HRA in
Florida, for example, might implement a roof-strengthening program in
the historically Black Miami neighborhood of Liberty City so homes are
better protected against hurricanes, and then provide affordable
insurance for those same homes.

HRAs would coordinate and oversee comprehensive disaster risk
reduction to limit damage before disasters strike. As such, HRAs would
play a key role in land use policy by developing, implementing, and
enforcing building codes for preventing construction of new housing
and other infrastructure in high-risk areas, like easements or
setbacks along coastal and other flood-prone areas. Such restrictions
are essential to ensure that the rich don’t get to keep building in
beautiful but risky areas and then demand disaster relief paid for
with public money.

HRAs would also carry out holistic, community-oriented risk reduction
and decarbonization for existing housing that would combine structural
fortifying measures with energy efficiency updates. And they would
institute comprehensive, science-based, equitable, and democratic
mechanisms to proactively protect people at the greatest risk of
disaster by supporting them in relocating to safer, affordable
housing.

Even with all these risk-reduction measures, disaster insurance will
still be necessary. And it is public disaster programs that provide
the best way to spread the risk of unpreventable disasters and ensure
equitable access to post-disaster recovery funds, all without the
rent-seeking of private insurers. Coverage would be available for
homeowners, renters, mobile-home dwellers, and affordable housing
providers. Private insurers would still provide the standard policies
that cover things like kitchen fires and burglaries, but the HRA would
provide disaster insurance for all—a kind of Medicare-for-All system
for home insurance. This separation of roles is essential so that
private insurers don’t just cherry-pick the least risky policies,
leaving public programs with the riskiest ones, or benefit from public
investments in risk reduction without putting their own skin in the
game. New Zealand’s “natural hazard” insurance program provides
a model for this aspect of HRAs: the country’s public insurance
program provides the first layer of residential land and building
insurance for a range of hazards. All home insurance policyholders get
coverage for those hazards, and they pay a levy based on the coverage
amount, regardless of individual risk level.

HRAs would conduct catastrophe risk modeling and host a climate risk
advisory council, both of which would provide essential data and
expertise to back the agency’s decisions. A robust governing board
with members from policymaking, civil society, and scientific
communities would oversee the agency to ensure the input of key
stakeholders, including tenant advocates, insurance industry
regulators, affordable housing providers, environmental agency
leadership, and tribal governments.

HRAs would shift away from today’s model of privatizing profits and
socializing losses by defining premiums primarily by household income
level, and by securing funding for the agency’s work from a variety
of sources. Those financing sources would be identified based on
analysis of which entities are most responsible for the current crisis
and which would most benefit from stability in home insurance. In
terms of responsibility, we suggest taxes or fees on fossil fuel
companies and private insurers. Among the entities that would most
benefit from insurance stabilization, mortgage lenders and real estate
agencies top the list.

State HRAs could collaborate with one another to pool risks and
resources; California, Oregon, and Washington, for example, could
align to create a Western Region Housing Resilience Agency. HRAs could
also diversify their risks and assist households in states that do not
quickly adopt HRAs—like Florida or Texas, given their current
political realities—by providing some policies out of state.

This HRA proposal is intentionally broad; each state has unique
disaster risks and existing entities that would shape how HRAs are
designed and implemented. But we hope it will inspire local organizers
and policymakers to build out their own visions.

Even as we work to end fossil fuel production, we must confront the
ways that climate change is affecting people’s everyday lives and
economic futures. Public programs that provide fair and equitable
disaster insurance protection, coupled with coordinated and
comprehensive disaster risk reduction, are the best way to confront
the growing housing safety and affordability crisis.

_MOIRA BIRSS is a senior fellow with the Climate & Community
Institute and an independent consultant on just transition policy._

_MACKENZIE MARCELIN is the climate justice director with Florida
Rising._

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