When insurance becomes unaffordable

How rising insurance costs affect financial services – and what the industry can do about it

Report
June 2025

Higher insurance costs and declining coverage availability go beyond insurance and affect the entire real estate and credit ecosystems.

The cost of insurance continues to rise. Billion-dollar weather and climate-related disasters are now regular occurrences. As a result, insurance premiums have significantly increased and coverage exclusions are growing.
Financial institutions are directly exposed. Residential and commercial lenders face the prospect of increased delinquency risk, collateral erosion and concentration vulnerabilities, especially in catastrophe-prone markets.
Real estate developers face increasing threats to their business. Higher insurance costs are jeopardizing development in high-risk areas despite pent up demand for new development.
Investor behavior is changing. Climate migration, capital reallocation, and growing awareness of underinsurance are already reshaping the risk-return equation for both debt and equity real estate investors.
Coverage availability and affordability are key concerns for state regulators. The cost of and access to coverage have become hot-button political issues in many states.
Insurance is becoming a strategic risk consideration. Coverage availability and pricing now influence development feasibility, asset valuations, lending decisions and regional housing market dynamics.
There is opportunity in action. Institutions that proactively assess insurance cost trajectories, invest in climate resilience and develop appropriate lending structures will be in a better position to weather future volatility and be market leaders.
Collaboration is key. Simply transferring risk is no longer viable – It’s imperative for a variety of stakeholders to collaborate on reducing risk exposure.

Higher insurance costs and declining coverage availability are eroding property affordability and suppressing demand. Federal Reserve Chair Jerome Powell recently cautioned that, “If you fast-forward 10 or 15 years, there are going to be regions of the country where you can’t get a mortgage,” as both insurers and lenders retreat from high-risk areas. At its current trajectory, this trend could lead to a $1.5 trillion decline in US home equity values over the next 30 years.

These developments go beyond insurance and affect the entire real estate and credit ecosystems. Many homeowners are seeing their costs increase and property values decrease, commercial property owners are facing eroding margins and declining valuations, developers are experiencing higher costs and difficulty obtaining coverage for certain new construction projects, and investors are reassessing their risk models and appetite for real estate assets.

Alongside macroeconomic issues such as high interest rates and limited housing supply, increasingly common climate-related disasters are a significant driver of these developments. According to NOAA, the US has annually experienced more than 15 weather and climate events since 2020, each causing over $1 billion in damages. In 2023, the country faced 28 separate billion-dollar disasters, totaling over $180 billion in economic losses. 2024 brought 27 more, led by Hurricanes Helene and Milton, and 2025 began with the devastating Los Angeles wildfires, which are estimated to have caused $76-131 billion in economic damages.

Geographic concentrations compound the challenge. Analysis from PwC’s Geospatial Climate Intelligence shows a considerable and growing number of US homes are located in areas with high exposure to at least one severe climate peril, whether hurricanes, wildfires, floods or extreme heat. Between 2010 and 2020, the US population living in moderate-to-high wildfire risk areas grew by 3.2 million and coastal counties along the Gulf and Southeast Atlantic coasts continued to see rapid development despite repeated climate shocks. There are related "secondary perils," such as severe convective storms and hail, which have been responsible for 67 disasters exceeding $1 billion in damages since 2020. As a result, US homeowners have seen net incurred losses far outpace general economic growth and inflation over the past decade, and rising insurance costs and climate concerns are contributing to migration slowdowns in some high-risk areas.

These weather events, which put more people and properties in harm’s way and result in higher insurance costs, have increasingly serious implications for lenders, developers and investors...

Access the full report to read more about:

Major challenges for residential and commercial lenders, developers and investors
Opportunities for proactive risk mitigation and greater market stability
Financial innovations that promote resilience

When insurance becomes unaffordable