The shocking rise in policy cancellations: Is your home insurance next?
The shocking rise in policy cancellations: Is your home insurance next?
Based on recent announcements from various state insurance regulatory agencies, along with national headlines and reporting, it’s evident that property insurance policy cancellations and non-renewals are increasingly common, particularly in regions susceptible to natural disasters. This growing trend is fueled by a confluence of factors, most notably the escalating risks and costs associated with more frequent and severe climate-related events like wildfires, hurricanes, and floods. Consequently, insurers are re-evaluating their exposure in these vulnerable areas, leading to significant shifts in coverage availability and prompting homeowners to navigate a more challenging insurance landscape.
Given these mounting challenges across the property and personal lines insurance landscape, CheapInsurance.com examines the intricacies of this growing trend of policy cancellations and non-renewals, explores the many reasons behind this shift, analyzes its far-reaching consequences for homeowners insurance, and provides valuable insights into navigating this evolving insurance environment to secure the necessary protection you require.
U.S. Department of the Treasury Weighs In
In January 2025, the U.S. Department of the Treasury’s Federal Insurance Office (FIO) released a comprehensive report that provided significant national-level analysis on the escalating challenges within the homeowners insurance market. This report specifically highlighted the concerning trend of rising insurance costs coupled with a decrease in the availability of coverage for homeowners across the country. Critically, the FIO’s findings directly linked these adverse market conditions to the increasing frequency and severity of climate-related events. The report underscored how more frequent and intense natural disasters, such as hurricanes, wildfires, and floods, are driving up insured losses and prompting insurers to reassess their risk exposure, leading to both higher premiums and decisions to limit or withdraw coverage in certain vulnerable areas. This official recognition from a key federal body emphasizes the systemic nature of the problem and the growing understanding of the direct impact of climate change on the stability and accessibility of homeowners insurance.
Reasons for Increased Cancellations and Non-Renewals
Rising climate-related risks. More frequent and severe natural disasters like wildfires, hurricanes, and floods are leading to substantial insured losses. Insurers are reassessing their risk exposure in these areas. For example, California has been significantly impacted by wildfires, causing some major insurers to scale back coverage or withdraw from the market entirely.
Increased rebuilding costs. The cost of construction materials and labor has increased significantly, making it more expensive for insurers to pay out claims and for homeowners to rebuild.
Higher claim frequency and severity. Data indicates a rise in both the number of claims filed and the average cost per claim.
Insurers’ financial strain. The combination of higher risks and costs is making it more expensive for insurers to operate profitably in certain areas. Some analysts even question the long-term profitability of homeowners insurance in high-risk zones.
Regulatory constraints. In some states, regulations intended to protect consumers from steep rate hikes may limit insurers’ ability to adjust premiums to reflect increasing risks, leading them to reduce coverage instead. Proposition 103 in California is cited as an example of such a regulation.
Homeowners filing multiple claims. Insurers may view property owners who file multiple claims against their home insurance within a short period as higher risk and may choose not to renew their policies.
Poor property maintenance. If a property is not well-maintained and falls into disrepair, insurers may deem it a higher risk and decide not to renew the policy.
Misrepresentation on application. Providing false information or omitting important details on the home insurance application can lead to policy cancellation.
Non-payment of premium. Failure to pay insurance premiums is a primary reason for policy cancellation.
Recent Trends
California. Several major insurers, including State Farm, Allstate, Farmers Insurance, and Nationwide, have scaled back coverage or stopped writing new policies in certain high-risk areas of California due to wildfire concerns. Non-renewal rates have shown an upward trend in the state.
National trends. A recent Consumer Reports study found that a significant majority of long-term policyholders nationwide have seen their rates increase over the past five years, and many are facing outright cancellations.
Increased claim denials. Claim denial rates have increased nationally, meaning even those with coverage may not receive the expected financial relief after a disaster.
Growth of state-backed insurance. As private insurers retreat from high-risk areas, the reliance on state-backed insurance plans like the FAIR Plan in California and Citizens in Florida is growing significantly. These plans often serve as a last resort but can be more expensive and offer less comprehensive coverage.
What Home Owners Can Do
Contact your insurer. If your policy is canceled or not renewed, contact your insurer to understand the specific reason.
Shop around. Start looking for new home insurance quotes immediately. Consider using an independent insurance agent or broker who works with multiple insurers.
Consider state FAIR plans. If you cannot find private coverage, look into state-sponsored Fair Access to Insurance Requirements (FAIR) plans, though these should be considered a last resort.
Maintain your property. Proper maintenance can help prevent non-renewal due to property conditions.
Be honest on applications. Ensure all information provided on insurance applications is accurate.
Explore resiliency measures. Some insurers are starting to offer discounts for homeowners who take steps to mitigate risks, such as wildfire hardening. This includes actions such as removing flammable landscaping plants and mulch five feet away from the base of your home or buildings
What Is The Last Resort for Home Insurance?
Regulatory mechanisms like the California FAIR Plan (Fair Access to Insurance Requirements) serve as a crucial safety net for homeowners in high-risk areas where traditional insurance companies are hesitant to provide coverage. Established by state legislation, the FAIR Plan typically offers basic property insurance coverage for those who cannot obtain it in the voluntary market. While these plans ensure a last resort for coverage, they often come with limitations such as lower coverage amounts and potentially higher premiums compared to standard policies. The aim is to provide essential protection against perils like fire, but they may not cover other risks such as wind damage or liability. These plans are funded through assessments on admitted insurers in the state, distributing the risk across the insurance market.
Several other states facing similar challenges with insurance availability have established their own versions of FAIR Plans or comparable “insurer of last resort” programs. Examples include:
- Florida: Citizens Property Insurance Corporation
- Texas: Texas Windstorm Insurance Association (TWIA) (primarily for wind and hail in coastal areas)
- Louisiana: Louisiana Citizens Property Insurance Corporation
- New York: New York Property Insurance Underwriting Association (NYPIUA)
- Massachusetts: Massachusetts Property Insurance Underwriting Association (MPIUA)
- North Carolina: North Carolina Insurance Underwriting Association (NCIUA) (for coastal wind and hail)
- Mississippi: Mississippi Windstorm Underwriting Association (MWUA) (for coastal wind and hail)
Insurers of Last Resort: Is It Affordable?
Are these last resort options affordable?
Generally, no, insurers of last resort like the California FAIR Plan, Florida’s Citizens, or Texas’ TWIA are not designed to be affordable compared to standard market insurance. They are intended as a safety net for high-risk properties that private insurers are unwilling to cover. As such, their premiums often reflect the higher risk they undertake, and they can be significantly more expensive than traditional policies. For example, in California, FAIR Plan policies can cost substantially more than the average homeowners insurance in the state. The Colorado FAIR Plan even states that it is “the most expensive way to insure a property” with “substantially higher premiums.”
Is a last resort insurance policy good protection?
The level of protection offered by last resort insurance policies is typically more limited than that of a standard homeowners or property insurance policy. These plans often provide basic coverage for specific perils, such as fire, and may have lower coverage limits. For instance, the California FAIR Plan primarily covers fire, lightning, internal explosion, and smoke damage. Optional coverages for other perils like wind, hail, theft, or liability might be available at an additional cost, but the basic policy is often quite bare-bones. Furthermore, some FAIR Plans may only insure homes at actual cash value (ACV) rather than the more comprehensive replacement cost value (RCV), meaning depreciation is factored into claim payouts. While a last resort policy is better than having no coverage at all (especially when required by a mortgage lender), it’s not a substitute for the broader protection offered by a typical insurance policy in the voluntary market. The goal of these plans is often to provide a temporary safety net until homeowners can find coverage with a traditional carrier.
This story was produced by CheapInsurance.com and reviewed and distributed by Stacker.
