Homeowners Can’t Count on Insurance. States Can Help.

How homeowner's insurance is failing residents

Homeowner's insurance is supposed to offer some level of protection and stability for a path to recovery. For starters, it should cover basic damages, and it should be there year after year. The insurer should pay out when it's legally obligated to and not create unreasonable or unworkable obstacles to settling claims. And if a homeowner eventually files a claim, the insurer should still be around, with the money to pay that claim.However, these assumptions don't always play out.

Complex policies can hide critical gaps

Homeowner's insurance policies are often complex and hard to fully understand. Policies are written with legal precision, emphasizing technical specificity over readability. As a result, many homeowners are unaware of their insurance policies' details and flaws. For example, most standard policies exclude floods and increasingly limit coverage for wind, hail, earthquakes, and "earth movements" (landslides, sinkholes, and the like). States like North Carolinaare now shifting to depreciate many roof claims through standardized payment schedules, leaving people with roofs more than a few years old with less coverage. This complexity leaves homeowners vulnerable to unexpected financial shocks as they seek to recover from extreme weather-related damage.

A growing share of claims goes unpaid

Even when homeowners have coverage, insurers often deny claims when they conclude that the damage resulted from an excluded peril rather than a covered one. If a homeowner files a claim for hurricane damage, for example, the insurer may respond that the damage was caused by flooding (excluded) rather than wind (covered). The result of these claim denials is that more families are being forced into debt, delaying critical repairs, or living in dangerous, deteriorating homes because the insurance they paid for simply doesn't come through.

Insurability crisis, by the numbers

Homeowners are increasingly absorbing repair costs they had expected insurance to cover. It's pushing many families into debt, delaying essential home repairs, or forcing people to live in unsafe or deteriorating conditions

Insurer insolvency leaves homeowners paying the price

When catastrophic disasters, such as hurricanes or wildfires, cause widespread damage, the resulting surge in claims can sometimes exceed an insurer's financial reserves, leading to insolvency. Although state guaranty funds provide a safety net to cover some outstanding claims, insolvency risks highlight the precarity of insurers that operate in high-risk areas.

When an insurer becomes insolvent, payouts to policyholders may be reduced to a fraction of the original claim amount. Homeowners can be left covering major repair costs out of pocket, navigating slow and complex guaranty fund processes, struggling to secure new coverage, and dealing with long-term drops in their homes' value-all on top of already delayed recovery.

Alternatives to private homeowner's insurance: Higher costs, less protection

Escalating losses from weather disasters and rising rebuilding costs over the past decade have led many insurers to drop homeowner's insurance altogether. According to the U.S. Senate Committee on the Budget, U.S. insurers have droppedmore than 1.9 million policies from 2018 to 2023. When homeowners are unable to find traditional coverage, their options are relegated to coverage that is generally more expensive and less protective-with fewer regulatory safeguards.

FAIR plans

State-run Fair Access to Insurance Requirements (FAIR) plans, beach and wind plans, and joint underwriting associations-also known as residual market plans-serve as insurers of last resort for homeowners who can't get coverage in the private market, but they often come with significant drawbacks. These plans typically charge higher premiums, offer narrower coverage, and have higher deductibles than standard policies. Policyholders may also face limited claims-handling resources, slower processing times, and reduced policy flexibility.

Excess and surplus lines

Non-admitted insurers, also known as excess and surplus (E&S) lines insurers, are not licensed in a particular state but are authorized to provide coverage when admitted insurers won't. For example, E&S insurers underwrite very-high-risk properties, like fireworks factories, or unique situations that require specialized coverage, like a singer's vocal cords. Increasingly, these unregulated insurers are moving into the home insurance space. Non-admitted insurers can offer more flexible or higher-risk coverage but aren't so reliable for policyholders: Customers are not protected by state guaranty funds if the insurer becomes insolvent, nor can they rely on regulatory safeguards. E&S lines use complex, non-standardized language in their policies and have less stringent capital requirements for financial solvency purposes-in other words, these businesses are more prone to fail. Given the lax protections, policyholders generally have less recourse if a problem arises in the claims-handling process.

Lender-placed (aka force-placed) insurance

When a person purchases a house using a mortgage, the lender requires insurance to protect its financial interest. If a homeowner with a mortgage cannot find affordable insurance, the mortgage lender will force-place an insurance policy onto their terms. Lender-placed insurance-coverage that a mortgage servicer buys when a homeowner cannot purchase insurance or the homeowner's policy lapses-comes with significant drawbacks for homeowners. These policies are far more expensive than standard homeowner's insurance and offer much narrower protection. They typically cover only the lender's financial interest-essentially, the mortgage balance-while excluding the homeowner's equity in the property as well as personal property and liability coverage, leaving homeowners largely unprotected.

Going "bare"

Homeowners who have already paid off their mortgage have a final option of self-insuring, aka "going bare"-meaning they are compelled to forego insurance coverage altogether for their home. The Consumer Federation of America estimates that more than 12 percent of homeowners have elected to go without insurance coverage due to unaffordable pricing.ⁱ While this option may save money in the short run, homeowners can face financial ruin if their home is damaged and requires repairs beyond their means.

What state/local governments and insurance regulators can do

We often hear this described as an insurance crisisin the United States. But that term is misleading, as the insurance companies themselves are not in crisis. Rather, this crisis is based on what makes a home uninsurable in the current market, in which states have a big role to play. Factors such as lax building codes and land use statutes and an underemphasis on climate resiliency and risk reductions are all driving ourinsurability crisis.The good news? We have the tools to address these policy gaps.

States can pursue a coordinated set of reforms to strengthen both public and private insurance options to reduce underlying risk and increase reliability. Without coordinated state action, the insurance safety net will continue to unravel-leaving more families unprotected as climate risks escalate.

• Reduce long-term insurance losses by strengthening building codes, improving land use planning, and investing consistently in hazard mitigation and resilience projects-funded in part through insurance-related fees or premium taxes.
• Hold insurers accountable by increasing transparency in rate-setting, banning unrelated rating factors like credit scores, and tightening oversight of loosely regulated E&S carriers.
• Stabilize and reform FAIR plans by offering targeted grants, premium discounts, and affordability programs that encourage risk-reduction upgrades while improving plan governance and preventing private insurers from shifting assessment costs onto policyholders.
• Consumer protection reforms are also necessary-incorporating risk mitigation measures into rate-setting and underwriting-to ensure insurers reward proven mitigation efforts with lower premiums and continue to operate in areas of higher risk.

Many states have seen these types of proactive, people-centered policy investments pay off-even in hurricane-prone coastal areas. For example, the North Carolina Insurance Underwriting Association (NCIUA)has mitigated insurance risks by incentivizing home reinforcements before disasters occur. Through its Strengthen Your Roofand Strengthen Your Coastal Roofprograms, the association provides grants of up to $10,000 to help homeowners install Fortified roofs, which are specifically designed to withstand high winds and severe storms. Research from North Carolina State University confirms the program is seeing positive results; these roofs have reduced claims from named storms by 35 percent and lowered the cost of losses per claim by 23 percent.

Ultimately, restoring insurance reliability will require states to pair stronger oversight with meaningful investments in risk reduction, transparency, and fair access to coverage. By acting now, policymakers can ensure homeowners aren't left carrying the full weight of rising climate risks without a dependable safety net.

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