Millions of Homes Unprotected as Climate-Driven Insurance Costs Soar

The latest report from First Street, Climate, the Sixth "C" of Credit, uncovers the harsh financial realities of climate-driven risks in the U.S. housing market. Insurance has traditionally provided essential protection against extreme weather events like wildfires and hurricanes, but a widening gap in flood coverage and skyrocketing premiums are leaving millions of homeowners vulnerable. The report estimates that over 17 million properties face serious flood risk—more than double what FEMA currently recognizes—highlighting significant discrepancies in risk mapping.

The financial consequences are severe. In counties outside FEMA’s Special Flood Hazard Areas, flooded homes without insurance saw a 51.8 percentage point increase in foreclosures compared to insured properties. First Street’s analysis ties every 1% increase in insurance premiums to a matching 1% rise in foreclosure risk. With premiums now exceeding 10% of average monthly mortgage payments, homeowners are increasingly burdened by the cost of protection once deemed standard.

The insurance crisis is also reshaping communities. As insurers pull out of high-risk markets, state-run FAIR Plans are expanding but often offer limited coverage. In places like Kentucky, Pennsylvania, and California, the mismatch between FEMA’s flood maps and actual risk could leave entire neighborhoods exposed to unrecoverable losses after a disaster. Even undamaged homes suffer from the economic ripple effects—reduced property values, disrupted services, and increased financial instability.

Ultimately, the report calls for a reevaluation of insurance, credit risk, and federal oversight, asserting that climate must now be treated as a fundamental factor in lending decisions. As climate threats intensify, insurance may be both the solution and the new barrier to homeownership stability in the United States.