The Rising Crisis: Why More Homeowners Are Opting Out of Insurance


Quick Hits:

  1. Rising Costs: Home insurance premiums have significantly increased due to climate change and escalating housing prices, making it difficult for many homeowners to afford coverage.
  2. Insurance Withdrawal: Major insurers are pulling out of disaster-prone areas, leaving homeowners with limited and expensive insurance options.
  3. Growing Risk: The number of uninsured homeowners is rising, particularly among those who have paid off their mortgages, posing significant financial risks in case of catastrophic events.

My name is Samuel Lopez, and I am a reporter for USA Herald with over 20 years of experience in the legal and insurance industry. As a legal analyst, I aim to provide a thorough understanding of the growing crisis in home insurance. What was once a ‘must-have’ is now becoming an unaffordable luxury for many homeowners.

[USA HERALD] – Claire Barron found out that State Farm was dropping her policy from reading the news. After seeing a story about the insurer pulling out of Santa Cruz County, her longtime home, she called her agent to confirm that her plan would lapse—setting off a desperate search for a replacement policy that is ongoing.

Barron’s story is becoming increasingly common. Her first quote for a new policy was over $10,000 a year for bare-bones coverage. Other quotes ranged from $17,000 to $25,000, well beyond her budget. Living near Soquel, close to Monterey Bay, she faces the dual threat of picturesque beauty and looming wildfire risks, making home insurance essential yet unaffordable.

According to State Farm, cancellations like Barron’s account for only 2 percent of their policies in California. However, this small percentage represents thousands of homeowners left scrambling for coverage. Nationally, the number of uninsured homeowners is on the rise. A 2023 estimate from the Insurance Information Institute revealed that 12 percent of homeowners had no insurance in 2022, up from just 5 percent in 2019.

Experts attribute this trend to the escalating threat of climate change, which has led to larger insurance payouts and skyrocketing housing prices. These factors have pushed policy costs up significantly. In 2023, the average home insurance policy rose by 11.3 percent, according to S&P Global.

Additionally, some insurers are pulling out of high-risk areas. Companies like State Farm have announced they will not renew policies in wildfire-prone counties such as Santa Cruz. In other states, including Iowa, insurance providers are also withdrawing due to increased natural disaster risks. Reinsurance companies, which insure the insurers, are raising their prices, further driving up costs.

“It’s impractical for any homeowner to think they can pay for catastrophic losses out of pocket. The increasing trend of homeowners going without insurance due to high costs and policy cancellations poses a significant risk.”

Homeowners who opt to forgo insurance face serious legal and financial consequences. Mortgage lenders require insurance, and failure to maintain a policy can be considered a form of default, potentially leading to foreclosure. More commonly, banks will select a plan for the homeowner and impose the costs, but these policies often lack coverage for natural disasters.

The legal landscape in states like California further complicates matters. Insurers must use historical data rather than predictive models to price their policies, which can lead to inaccurate risk assessments. In March, California’s insurance commissioner approved a 20 percent rate increase requested by State Farm, highlighting the tension between regulatory frameworks and market realities.

Case Studies: The Human Impact

Claire Barron:

Barron’s situation reflects the broader issue. Despite making efforts to reduce risks, such as improving fire safety around her home, she found it impossible to secure affordable insurance. “None of us can afford to lose our insurance. And we thought if we do these things, we won’t lose our insurance,” she said.

Mary Murphy:

Mary Murphy, who moved to California’s Butte Valley after the 2018 Camp Fire destroyed her home in Paradise, faced similar struggles. To rebuild, she needed a loan, which required insurance. Her cheapest option was $8,000 a year for a California Fair plan. Priced out, she chose a $1,300-a-year plan that doesn’t cover natural disasters, hoping the Camp Fire was a once-in-a-lifetime event. “I figured if I lost everything again, that’s God’s plan,” she said.

The rising cost of home insurance and the withdrawal of major insurers from high-risk areas are forcing many homeowners to reconsider their coverage options. This trend is particularly concerning for those in disaster-prone regions. The increasing number of uninsured homeowners highlights the urgent need for regulatory and industry changes to ensure that insurance remains accessible and affordable.

For more detailed updates on this crisis and other legal news, follow my articles on USA Herald. Stay informed and engaged with the latest developments in the insurance world.

For a detailed look at my professional background and other articles, visit my bio here.

Related stories:

California’s Home Insurance Crisis: A Ticking Time Bomb
Insurance in Focus: The Impact of Surveillance In the Insurance Sector and the Ring-FTC Incident

Ethical Reporting:

Accuracy and impartiality are paramount. This report is based on verified information and provides a balanced view of the implications of the rising trend of uninsured homeowners.