How are natural disaster costs impacting home insurance?

In the study, released in late April, Swiss Re notes: “States with highest exposures to natural perils (according to insurance loss history) are also where, in general, homeowner premiums are highest.” According to the analysis, there is a 76% correlation between state-level homeowners insurance prices and catastrophe prices per policy. 

So, while there is no one-to-one connection between homeowners insurance premiums and the prevalence of natural disasters, there is a strong correlation. This study highlights Louisiana and Florida as examples. These two states have the highest average insurance premiums and are among the top five with the most significant natural catastrophe losses. 

Texas and Oklahoma have the third- and fourth-highest average insurance premiums due to the prevalence of severe convective storms (SCS), which include tornadoes and hailstorms.  

Peter McMurtrie, insurance practice lead at business and consulting technology firm West Monroe, says the cost of insurance has increased to cover the losses from severe weather. “While more [catastrophe-prone] markets may see the heaviest impact on availability and cost, there are also national-level impacts due to the increased cost of reinsurance,” he says.

The high costs associated with covering natural disasters can also affect the availability of policies for homeowners. “We have seen this impact firsthand in states like Florida, Louisiana, and more recently California, where national carriers like State Farm, Allstate, and Travelers have opted not to write (Florida and Louisiana) or have greatly reduced their exposure (California) due to the volatility and uncertainty,” McMurtrie says.

When discussing how natural disasters may affect the availability of homeowners insurance, Clifford V. Rossi, director of the Smith Enterprise Risk Consortium at the University of Maryland, says policyholders in California and Florida “...have seen their policies not renewed due to rising costs of natural disasters for insurers.”

Rossi says that while there isn’t a question on the effect of natural disasters on availability and premiums, there are other considerations. “Sometimes other factors play into the provision of insurance, such as state insurance commissions and tort law. State insurance commissions can limit the extent of rate hikes on homeowners, and such limits are considerations by insurers on whether to continue to write policies or not in areas where they are unable to obtain rates that would adequately cover insurance company costs,” he says.

Do natural disasters outside the U.S. impact insurance costs here?

Yes, disasters outside the U.S. can impact insurance costs here at home. Anything that happens internationally to increase insurance and reinsurance costs can affect premiums here.

Legally, insurance companies must have enough money to pay all claims. This is to help protect consumers. However, it does limit how many policies an insurance company can sell. One way around that is for a carrier to buy insurance from another company. This is called reinsurance, and it not only allows the primary insurance company to sell more policies but also transfers some of the risk of paying for those policies to the reinsurer. 

“One way to think about reinsurance is that it is insurance for insurers,” Rossi says.

He says that one reason homeowners insurance premiums in the U.S. have risen is the increase in the cost of reinsurance in recent years, which eventually gets passed down to policyholders.

“Global reinsurance plays a critical role in supporting the U.S. homeowners market. Reinsurance coverage greatly expands the capacity of exposure an insurance carrier would otherwise be able to write in a given market. This is particularly true for regional and single-state carriers,” McMurtrie says.

For example, Swiss Re’s study suggests that reinsurance will cover a third of the costs for the California wildfires earlier this year.

Reinsurers are affected by the same forces as primary insurance companies, including severe weather and other natural catastrophes such as floods and earthquakes. So, an increase in global insured losses would trickle down to the U.S. homeowners insurance market.

“Since reinsurers manage their exposure on a global level, there is some impact on the cost and capacity of reinsurance in the U.S. due to large-scale events outside of the U.S.,” McMurtrie says.

What is an insured loss?

An insured loss is a loss covered by your insurance policy. For example, if your house burned down in a fire, your insurance policy would likely cover the loss of your home and personal property. But if a flood destroyed your home and you didn’t have flood insurance, that would be an uninsured loss.

Typically, uninsured losses are the responsibility of the homeowner. For example, if a flood damages a home, the homeowner would be responsible for cleaning up, repairing the house, and replacing any destroyed personal belongings. 

However, there may be situations where an organization, such as FEMA, can help. However, FEMA could only help if the president declared the event a federal disaster. FEMA stresses on its website that it is not a replacement for homeowners insurance. In the past, it has said it would only cover “the basic needs for a home to be safe, sanitary and livable.” FEMA could also help with some travel expenses and immediate housing assistance. In 2024, reforms expanded what was covered. But it’s still pretty minimal compared to a homeowners insurance policy. 

How to protect against uninsured losses

To protect against insured losses, ensure you understand what your homeowners insurance policy does and doesn’t cover. For example, standard homeowners insurance policies don’t cover floods or earthquakes. However, coverage is available as separate policies or add-ons, called endorsements.

To cover flooding, you can purchase a flood insurance policy from the National Flood Insurance Program (NFIP) or a private insurance company. A policy through the NFIP covers your home up to $250,000 and your personal belongings up to $100,000. Look to private flood insurance for more coverage.

An earthquake insurance endorsement or policy covers both earthquakes and landslides. Like flood insurance, earthquake insurance covers damage to your home and personal belongings. Unlike flood insurance, an earthquake endorsement may also cover additional living expenses if you need to live elsewhere because of the damage. 

It’s also important to know that, in some areas, you need to purchase separate windstorm coverage. Check your policy to ensure you have the coverage you need.

Swiss Re predicts approximately $145 billion in insured losses from natural catastrophes in 2025. This would follow the global trend of 5% to 7% increases yearly. In the U.S., the increase has been 8% annually since 2018. 

However, there is a 1-in-6 chance of insured losses hitting $258 billion in 2025 and a 10% chance of insured losses reaching $300 billion. This would be considered a peak loss year, when insured losses exceed the average. According to Swiss Re, there have been five peak loss years in the past three decades, the last being in 2017. That year, hurricanes Harvey, Irma, and Maria helped push global insurance losses to 111% beyond the expected trend. 

Peak loss years are massive drivers of insured losses. The study finds that losses from the five peak loss years total $655 billion, or one-third of all losses from natural catastrophes since 1995. 

In its study, Swiss Re states, “Peak loss years, due to either the accumulation of many loss events or those from a few individual large events, should not be considered a freak occurrence. History repeats and it’s not a question of if, but when the insurance industry will face the next peak loss year.”

Which natural disasters cause the most insured losses?

Hurricanes Helene and Milton caused a combined total of $44 billion in insured losses and were the largest single loss events of 2024. 

However, convective storms typically cause the most damage over the course of a year. In 2024, these types of storms caused $53 billion in insured losses globally. It was the second-costliest year for SCS damage after 2023, when these storms caused $70 billion in insured losses. According to Swiss Re, the United States has the highest insured losses due to SCS in the world. 

“Natural disasters like hurricanes, tornadoes, flood events and wildfires attract a lot of attention in terms of the devastation they create on communities. However, other natural hazards such as hail storms have posed significant losses to homeowners and insurance companies over the years as the frequency and severity of convective storms has increased,” Rossi says.

In the U.S., events causing $1 billion or more in losses are likely SCS. 

Flooding was also a major driver of insured losses, totaling $20 billion last year. Europe had the highest total losses ($11 billion) in 2024. 

Will home insurance rates continue to rise in 2025?

Signs indicate that home insurance rates will continue to rise in 2025. Swiss Re states that it believes that homeowners insurance premiums will continue increasing because “...ongoing underwriting losses suggest that premiums are still not commensurate with the risk, and that further alignment is necessary to sustain insurance business.” 

In other words, insurance companies will need to continue to increase rates until they feel they are in a position to fully pay for the level of risk they are taking on without losing money. 

“Premium increases, unfortunately, are expected to rise going forward for homeowners, and it represents one of the fastest-growing expenses in their budgets,” Rossi says.

McMurtie offers some hope: “The insurance industry has done a good job of getting in front of the increased frequency and volatility of weather, and I’d expect price increases to begin easing in the second half of the year.” 

“The one caveat is the uncertainty of tariffs and the potential impact those could have on the cost of materials used for home repairs. If the cost of materials spikes like it did in 2020, carriers will move quickly to reflect those increases in rate changes,” he says.

Sources:

Swiss Re. “Natural catastrophes: insured losses on trend to USD 145 billion in 2025.” Accessed May 2025.

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