A 2022 Federal Reserve analysis found that insurers are indeed quicker to ask for rate hikes in states with looser insurance regulations, and more hesitant in highly regulated states like California — even if those states experience frequent disasters.
However, Ben Keys, an economist and professor of real estate and finance at the University of Pennsylvania’s Wharton School, says that this trend does not explain the recent hike in insurance costs. He and a colleague recently analyzed premiums from 47 million homeowners across the country, revealing an unprecedented view into the causes of the insurance crisis.
Over the past 40 years, Americans have been moving to more disaster-prone regions of the U.S. South and West. “A hurricane cutting the Gulf side of Florida now just encounters way more houses, way more businesses, way more roads, way more infrastructure than it did 40 years ago,” Keys said.
At the same time, climate change has been increasing the frequency and severity of extreme storms and wildfires in those fast-growing regions. Finally, when disaster strikes, inflation and labor shortages have driven up the cost of rebuilding.
All of these factors have made disasters more expensive, and contributed to the rise in premiums. But the biggest factor behind the rise, according to Keys, is the way that climate change is reshaping a fundamental pillar of the insurance industry.
