As climate change and continued development in at-risk areas has advanced, the costs of weather-related extremes in the U.S. has grown dramatically. As measured by the National Oceanic and Atmospheric Administration, between 2012 and 2023, “billion-dollar” disasters cost the U.S. almost $1.5 trillion in damages. These events impose large and wide-ranging costs on households, businesses, and communities.
As climate-related hazards intensify, insurance markets in the riskiest locations are entering into crisis. In many areas of the United States, private insurers are finding they can no longer profitably offer coverage, leading to rising prices and even high-profile exits of insurers from major markets. This market stress is having negative financial impacts on households, which may find they can no longer afford—or even find—the disaster insurance they need.
As research by the Environmental Defense Fund (EDF) has found, disaster insurance is essential to financially protect households and communities, and the current difficulties in the market raise significant concerns about equitable recoveries. Government insurance programs are stepping in to prop up insurance markets, providing needed relief to households but also leading to increases in the socialization of risk and driving up fiscal risks for many states.
The EDF team sees that the only long-term solution to these difficulties is dramatic investments in risk reduction. Engineering research has identified how to build safely in the face of weather extremes from wildfires to hail to hurricanes. These techniques have been developed into codes and certifications, such as the Fortified standard for hurricane winds and the Safer from Wildfire standard. When buildings are constructed to these standards, it can cost-effectively lower damages and reduce insurance prices. Unfortunately, adoption of such building approaches is still not widespread.
The public sector can support safe building through building codes and grants to fund needed retrofits, and insurers can also be a key driver of this change. Insurance, through its support of replacement and rebuilding, is a key lever to help support widespread, climate-friendly changes in our building stock. With over 90% of homeowners maintaining homeowners insurance, the insurance sector is in a unique position to drive stronger rebuilding—and also to help lower carbon emissions from the building sector. Buildings are responsible for over a third of greenhouse gas emissions in the United States and lowering those emissions is the most critical risk reduction strategy of all.
Post-disaster, significant barriers to doing resilient improvements exist: insurance is typically designed to only replace what was damaged or lost with the same thing; in an emergency context, property owners may not have the needed upfront funds and often lack the needed information on what actions to take, how to prioritize them, or who to call to do the work. Property insurers are in a unique position to address these roadblocks, but have not yet stepped into this role.
Led by disaster insurance expert Dr. Carolyn Kousky, EDF is researching strategies such as climate-related policy endorsements that would enable private sector insurers to successfully drive both resilience and decarbonization investments, in order to lower risk and catalyze faster and more widespread creation of climate-friendly buildings. The EDF team aims to help create insurable communities in the face of change, and recognizes that this will require action at all levels of government, as well as among building owners and the private sector. The design concept presented in the report based on Dr. Kousky’s research will specifically guide and support implementation of resilience-building policy endorsements within the private insurance market.