Homeowners Insurance Market Disruption: Challenges, Effects, and Solutions

Pete Carroll is EVP, Public Policy and Industry Relations with CoreLogic. Pete’s team drives enterprise strategic initiatives for CoreLogic, oversees industry engagement programs, leads enterprise positions on legislative, regulatory, and business policy developments, and expands opportunities for CoreLogic’s thought leadership and solutions expertise across the housing ecosystem. Pete was Executive Vice President at Rocket Mortgage where he led development on a broad spectrum of public and counterparty policy issues. Earlier, he was Senior Vice President, Capital Markets, at Wells Fargo Home Mortgage and was the Assistant Director (Head), Office of Mortgage Markets at the Consumer Financial Protection Bureau (CFPB), where he co-led the teams responsible for the original Dodd-Frank Act (DFA) mortgage rulemakings.

In late Spring 2023, professionals in housing and mortgage markets began sounding the alarm about  instability in the homeowners insurance market. Some homeowners were dropped by their insurers, while others faced significant premium increases that forced mortgage servicers to apply higher-cost lender-placed policies to them. These disruptions extended beyond individual consumers, affecting mortgage approvals, rate locks, and servicer operations. 

Two years later, the crisis persists, but its causes and solutions are now clearer. Restoring market stability requires immediate, bold action through public-private collaboration.

Drivers of Market Disruption

Several intersecting factors are driving the current market disruption, affecting insurers, consumers, and mortgage companies alike. Rising natural disaster losses, risk concentration, and increasing construction costs are pushing premiums higher. At the same time, state regulations, litigation challenges, and insurer-of-last-resort programs limit insurers’ ability to adapt, reducing insurance policy availability and creating further instability. 

Natural Disaster Frequency and Severity

The increasing frequency and severity of natural disasters are major destabilizers. Over the past two decades, multi-billion-dollar weather-related disasters—wildfires, hurricanes, and floods—have led to record insurance losses. Insured catastrophe losses have outpaced premium growth, forcing insurers to reassess risk models and pricing. That adjustment, as we will discuss, comes with significant challenges.

Risk Concentration

Migration patterns have also worsened risk concentration: Insurers are increasingly writing policies in locations that are most exposed to natural hazards, creating further pressure to increase price premiums to cover unexpected catastrophic losses. As demonstrated in the following charts, housing growth has been strongest in warm, amenity-rich, affordable regions, many of which face high exposure to natural hazards. Since 2000, U.S. housing stock has increased by 30%, with much of this growth in high-risk areas. CoreLogic¹ data confirms migration continues to concentrate exposure in these regions.

Construction Costs

Inflation and supply chain disruptions affecting construction equipment and materials have driven up Replacement Cost Value (RCV),² placing further upward pressure on insurance premiums. As demonstrated in the below chart, from 2020-2023, every state in the U.S. has experienced double-digit cost increases ranging from as low as 23% in Arkansas and New Jersey to greater than 35% in South Dakota and Utah. 

State Regulations

In theory, insurers can adjust premiums to reflect rising catastrophic losses, risk concentration in hazard-prone areas, and inflation-driven construction costs. However, state regulations—especially in high-risk states—often impose price caps that limit premium increases. Some states restrict rate hikes annually or over multiple years, preventing insurers from fully accounting for escalating risks. Lengthy approvals for annual rate filing processes, including regulatory reviews and public hearings, further delay adjustments. Certain states also prohibit insurers from factoring in forward-looking weather risks, using actuarially sound historical data, or passing reinsurance costs—essential for managing catastrophic losses—onto homeowners. These constraints can discourage insurers from operating in high-risk states, leading to market exits like those in Florida and California in 2023.

Litigation Challenges

Legal system exploitation increases insurance premiums by adding unnecessary costs and eroding insurer confidence in underwriting policies within the state. In Florida, Assignment of Benefits (AOB) abuse³ has contributed to nine insurer insolvencies since 2021 and, in 2022, was a key factor in Florida accounting for only 9% of all U.S. homeowners insurance claims, yet 79% of all U.S. homeowners insurance lawsuits.

State Insurer Of Last Resort Programs

As private insurers retreat from writing new policies in the states most affected by the above issues, state-backed insurers of last resort programs are becoming overextended: Florida Citizens Property Insurance Corporation now holds $1.3 trillion in underwriting exposure, adding to systemic instability. If premiums in these programs are underpriced and reserves are inadequate, insurers and policyholders bear a financial burden. For example, Florida’s Citizens program requires insurers to cover a portion of losses upfront, which they can later recover from policyholders. However, the program’s rapid growth and added financial exposure further deter private insurers from operating in Florida, a negatively reinforcing cycle that further strains insurance availability and increases premiums.

Moreover, data also suggests that when taken in their totality, the combination of these issues may be forcing insurers to offset losses by raising premiums in lower-risk, less regulated states. The chart on the left shows average homeowners insurance premiums in 2023, while the chart on the right highlights areas with varying levels of natural hazard risk. This comparison reveals that premium increases don’t always align with the highest-risk regions.

Effects on Consumers and Mortgage Market Participants:

The data shows additional, observable effects of homeowners insurance market disruption on consumers and mortgage market participants.

The financial burden on homeowners is severe. Home prices, construction costs, interest rates, and property taxes have all risen, but insurance has outpaced them. Average premiums rose 14% in 2024 and 38% since 2019: three times faster than mortgage principal, interest, and taxes. The hardest-hit states (Texas, Arizona, Utah, Colorado, Nebraska, and Illinois) saw 50%-62% increases since 2019.

In 2013, property tax and insurance (TI) costs exceeded principal and interest (PI) in 2.5% of all mortgages. By 2025, this share will reach nearly 9%. Servicers face increasing costs, as servicing a delinquent mortgage tied to a natural disaster can cost up to 16 times more than other delinquencies.

Finally, uninsured disaster losses burden taxpayers. CoreLogic estimates Hurricane Helene (2024) caused $20B–$30B in uninsured losses, requiring extensive public assistance. Federal, state, and local relief funds cover much of the gaps for homeowners, further straining government resources. A lack of available and affordable insurance coverage leaves homeowners financially vulnerable, making post-disaster recovery more challenging and prolonged.

Solution Frameworks

Restoring balance requires a multipronged approach involving regulatory reform and resilience investments. A well coordinated public-private initiative must drive these changes, bringing together insurers, mortgage lenders, real estate professionals, and policymakers.

Regulatory Reforms

State and municipal policies must evolve to enable risk-based pricing and incentivize resilience and adaptation. Over the last few years, natural disaster-prone states have made significant progress in implementing regulatory reforms to restore homeowners insurance availability and reduce premiums. Notable examples include: 

Building Code Reform: Florida's SB 4-D (2022) strengthened condominium safety regulations after the Surfside collapse. Studies by The Alabama Center for Insurance and Information⁴ found that Alabama’s FORTIFIED Home™ standards, requiring cost-effective storm resistance, cost only 3%-5% more than traditional homes to construct or rebuild but increase home values by an average of 7%, while also significantly reducing insurance premiums and storm damage expenses. Florida, California, and Oklahoma have also implemented similar reforms. 

Litigation Reform: Florida's SB 2-A (2022) and SB 76 (2021) curbed AOB abuse, stabilizing insurers’ financial standing and reducing the incentive for excessive claims-related litigation.

Catastrophe Modeling: In January 2025, the California Department of Insurance allowed insurers to incorporate forward-looking catastrophe models into rate-setting, improving coverage availability in wildfire-prone regions.⁵ 

Inclusion of Reinsurance Costs: California now permits insurers to reflect reinsurance expenses in premiums, ensuring long-term market viability and helping attract more private capital to high-risk areas.

Pricing Caps and Alternative Constructs: While recent policy interventions are a step in the right direction and are already benefiting homeowners in disaster-prone states, significant challenges remain. Chief among them are premium caps in high-risk states and potential cross-subsidization in lower-risk, less regulated states.

This presents a complex policy dilemma:

• Risk-based pricing ensures that premiums reflect the actual risk posed by a property, preventing lower-risk homeowners from unknowingly subsidizing those in high-risk areas.

• However, removing cross-subsidization could create price shocks for homeowners who were unaware of their property’s risk when they purchased it. This impact would be especially severe for lower-to-moderate income (LMI) homeowners, who may struggle to afford higher premiums, potentially jeopardizing mortgage repayment.

A relevant case study comes from Fannie Mae and Freddie Mac (GSEs) and their regulator, the Federal Housing Finance Agency (FHFA):

• Before the 2008 financial crisis, the GSEs used cross-subsidized pricing, which critics argued mispriced risk and contributed to mortgage losses.

• After the crisis, they shifted to a risk-based pricing model, which disproportionately burdened higher-risk (often LMI) borrowers.

• By 2014, a hybrid model emerged, grouping borrowers into risk tiers, where lower-risk borrowers paid a modest surcharge to offset premium increases for higher-risk borrowers—balancing risk management with affordability.

While homeowners insurance is regulated by the states, the National Association of Insurance Commissioners (NAIC) could play a critical role in coordinating principles for a similar hybrid pricing model across states. A public-private collaboration led by NAIC could explore ways to balance sound risk management with affordability protections, helping to ensure a more stable and equitable insurance market.

Strategic Adaptation and Resilience Investments

In addition to regulatory reforms, a scalable pilot program approach can validate and accelerate community and property-level resilience investments:

• Baseline Risk Mapping: Rapidly assess at-risk properties to identify high-concentration hazard zones.

• Cost-Benefit Simulations: Model the economic impacts of resilience efforts, quantifying insurance premium reductions and home value gains.

• Technology-Driven Collaboration: Use AI-powered verification to fast-track resiliency and adaptation adoption, reducing implementation time from a decade to two years or less.

• Resilient Relocation: Identify volunteers for Resilient Relocation, preserving homeowners’ equity while moving families to safer locations. These strategies can help communities at substantial risk of persistent disasters have the options and support structures needed to transition to lower-risk environments without significant economic losses.

Case Study: Paradise, CA Wildfire Resilience

The 2018 Camp Fire devastated Paradise, CA, prompting a study on resiliency and adaptation strategies. Findings include:

• Implementing the IBHS Wildfire Prepared Home™ program could cut wildfire losses by 53% (67% with aggressive measures).

• Community and property-level reforms—such as zoning and building code adjustments requiring fire-resistant roofing, siding, and windows, clearing parcel vegetation, and ensuring a minimum five-foot noncombustible zone between structures—could reduce average insurance premiums by 39%-49%.

• Wildfire-Informed Development Patterns (WIDP), which limit high-risk rebuilding, offer additional loss reductions.

Accelerating the Path from Planning to Premium Reductions

Despite clear benefits, regulatory and logistical hurdles delay premium reductions for homeowners implementing resiliency and adaptation measures. The following strategies, facilitated by comprehensive public-private partnership collaborations to raise community and homeowner awareness and speed implementation, can address these barriers:

1. Directly Linking Mitigation to Premium Adjustments: A structured verification system ensuring insurers recognize risk-reduction measures in rate-setting could accelerate savings.

2. Faster Homeowner Adoption via Incentives: Rebates, tax credits, and grants for home-hardening would drive compliance and speed premium adjustments.

3. Real-Time Data Integration for Insurers: A centralized certification process would enable insurers to immediately account for risk reductions.

4. Preemptive Risk Reduction Partnerships: Encouraging insurers and local governments to collaborate on proactive resilience and adaptation would shorten the time from investment to savings.

5. Zoning and Land-Use Adjustments: Preemptive Wildfire-Informed Development reduces long-term risk, improving insurer confidence in rate adjustments.

Conclusion

Achieving a sustainable homeowners insurance market requires innovation, data-driven policy adjustments, and cooperative public-private action. Incremental change is no longer sufficient: Bold, systemic solutions must be implemented now to prevent prolonged financial instability for homeowners, insurers, and mortgage market participants.

The opinions shared in this article are the author’s own and do not reflect the views of any organization they are affiliated with.

^[1]  Disclosure, in case you didn’t read my bio: I work for CoreLogic.

^[2] Replacement Cost Value (RCV) is the total cost to replace a structure, factoring in hard construction costs (e.g., labor, equipment, and materials) and soft construction costs (e.g., architecture, permits, site work) in the event of a total loss scenario following a natural disaster.

^[3] In an AOB arrangement, a homeowner signs over their insurance claim rights to a contractor or service provider, who then bills the insurer directly for repairs. While AOB is a legitimate process, some contractors and attorneys exploit it by inflating repair costs, submitting fraudulent claims, or engaging in excessive litigation against insurers. This has led to higher claims costs, increased litigation, and rising insurance premiums in states where AOB abuse is prevalent, such as Florida and Louisiana.

^[4] While investing in storm-resilient retrofits is economically rational, practical barriers such as inconvenience and project execution risks may make the costs outweigh the benefits for homeowners choosing to invest proactively. However, by empirically showing that the benefits—higher home values, lower insurance premiums, and reduced post-storm repair costs—exceed development costs, the study’s authors provide a strong public policy case for mandating FORTIFIED Home™ standards in Alabama’s building codes.

^[5] While it’s still early to assess the full spectrum of benefits, State Farm, the state's largest home insurer, has requested a 22% emergency rate increase following substantial losses from recent wildfires. California Insurance Commissioner Ricardo Lara has provisionally approved this request, pending a formal hearing on April 8, 2025 where State Farm must justify the increase. This development provides early indicia of efficacy, while long-term effects on market stability and consumer premiums remain to be seen.​

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