CBO analyzes recent changes in property insurance markets and considers alternative insurance products as well as policy approaches to increase the availability and affordability of insurance for homeowners and renters.

Climate change heightens the risks of wildfires and other natural disasters. As insurance payouts for losses sustained in those disasters increase and as uncertainty about future losses grows, people in many high-risk areas have faced difficulty obtaining or affording insurance coverage for their property. As risk and costs increase, premiums will increase as well, which may make insurance less affordable for homeowners. If state regulators do not allow higher premiums, insurers may exit high-risk areas, reducing the availability of insurance.

In this report, the Congressional Budget Office analyzes recent changes in property insurance markets and considers alternative insurance products as well as policy approaches to increase the availability and affordability of insurance for homeowners and renters. The highlights of that analysis include the following:

• Higher land and ocean temperatures, drought, sea level rise, and excessive precipitation are all features of climate change that contribute to increasing the risks of natural disasters, including wildfires, hurricanes, and floods. With increased uncertainty attributable to climate change, insurers may limit coverage for risks that are difficult to quantify or where regulators constrain their ability to set prices reflecting risk.
• Households may underinsure for natural disasters for a variety of reasons, including a lack of information about the risks and the extent of any postdisaster government assistance.
• Means-tested subsidies would make coverage more affordable for low- and moderate-income households. That approach has the advantage of targeting assistance and preserving incentives for other policyholders to mitigate losses, but controlling costs and implementing the program could be difficult.
• Other approaches would expand the availability of insurance. States could lessen regulatory constraints on insurers' risk-based prices. The federal government could act as a catastrophic risk reinsurer or insurer, as it does for flood insurance, and bear more of the cost of disasters.

• Data Underlying Figures

• Flood Insurance in Communities at Risk of Flooding
  July 11, 2024
• Flood Damage Avoided by Potential Spending on Property-Level Adaptations: Working Paper 2024-03
  May 28, 2024
• Flood Damage and Federally Backed Mortgages in a Changing Climate
  November 13, 2023
• How CBO Analyzes Public-Private Risk Sharing in Insurance Markets
  November 30, 2022
• Wildfires
  June 16, 2022
• Budgetary Effects of Climate Change and of Potential Legislative Responses to It
  April 27, 2021
• Federal Reinsurance for Terrorism Risk and Its Effects on the Budget: Working Paper 2020-04
  June 26, 2020
• Expected Costs of Damage From Hurricane Winds and Storm-Related Flooding
  April 10, 2019
• Measuring the Costs of Federal Insurance Programs: Cash or Accrual?
  December 19, 2018
• The National Flood Insurance Program: Financial Soundness and Affordability
  September 1, 2017
• Potential Increases in Hurricane Damage in the United States: Implications for the Federal Budget
  June 2, 2016