As wildfires tear through parts of Southern California, the communities of Southern Appalachia are still recovering from a natural disaster that occurred months ago. The last weekend of September 2024, Hurricane Helene barreled through the southeastern United States, wreaking havoc from the Florida Panhandle through Georgia, Western North Carolina and Eastern Tennessee. Many Appalachian communities were left in ruins, as heavy rains brought historic floods and landslides that destroyed entire towns, incapacitated public utilities and washed away roads and other infrastructure. In total, Helene is estimated to have caused more than $250 billion in economic losses and property damage¹ and killed at least 232 people across six states.²

In the hardest hit counties of Western North Carolina, cleanup and restoration efforts will continue for years. But where will the funding come from to rebuild? The state’s fragmented system for insuring homes has created a policy calamity that compounds the tragic loss of life and property.

In the hardest hit counties of Western North Carolina, cleanup and restoration efforts will continue for years. But where will the funding come from to rebuild? The state’s fragmented system for insuring homes has created a policy calamity that compounds the tragic loss of life and property.

“The property insurance market for homes was already a patchwork system that really doesn’t make a lot of sense,” says David Martlett, an Appalachian State University finance professor who leads the school’s Brantley Risk & Insurance Center.³ Homeowners insurance does not cover damage from flooding and many policies have exceptions for “earth movements,” which includes landslides. Meanwhile less than 1% of the households in the state’s most affected counties are insured through the National Flood Insurance Program, according to Census Bureau and NFIP data.⁴ North Carolina does not require that homeowners insure their homes at all, although most banks require coverage before they will issue a loan for a mortgage.

The disjointed system means that many North Carolina residents affected by the storm will not recoup anything close to their losses, yet it is hard to blame homeowners for not having insurance coverage. Deanne Criswell, who was Federal Emergency Management Agency director for more than three years before stepping down earlier this week, said in 2022 – two years before Hurricane Helene demonstrated her point – that FEMA’s floodplain maps, the tool NFIP uses to discern an area’s flood risk, are outdated because the maps do not account for the extreme rainfall events becoming more common due to climate change.⁵ Many residents of Western North Carolina did not know they would need flood insurance because flooding seemed unlikely. And for the few who are covered by NFIP, the program caps compensation at $250,000 for a single-family home’s structure and $100,000 for its contents. Flood coverage for renters covers only contents up to $100,000 and for businesses the total coverage maxes out at $500,000 for structural damage and contents combined.⁶

NC’s Affordability Problem in Home Insurance

The focus on North Carolina’s flood insurance shortfall diverts attention, at least for the moment, from the state’s and the nation’s broader, ongoing insurance crisis: the rapid rise in the cost of insuring a home. From 2018 through 2023, North Carolina’s average homeowner’s insurance rate increased by more than 36%, according to an S&P Global analysis.⁷ This rise in premiums is a substantial financial burden for
North Carolina’s already cash-strapped households, yet it is hardly exceptional when looking at the rest of the country. Over the same period, the national average homeowner’s rate increased by about 34%, approximately equal to North Carolina’s average rate hike, and yet additional rate increases are coming to North Carolina.⁸

In July 2023, North Carolina’s home insurers proposed massive insurance rates hikes, citing elevated costs of building materials, the rising cost of re-insurance (insurance that insurers purchase to help manage their risk portfolios), and increasingly frequent destructive weather events as reasons for the change. The North Carolina Rate Bureau – a nonprofit organization established in 1977 by the NC General Assembly to represent private insurers’ interests – requested a 50% hike in average statewide dwelling insurance rates from the state’s Department of Insurance. In January 2024, NCRB submitted a second request for a 42% increase in average statewide homeowners insurance rates.

NCRB’s rate increase filings begin a formal legal process with the state insurance commissioner’s office, which customarily denies the initial request, sets a date for a public hearing, and then negotiates with insurers behind closed doors. These negotiations, described as “tense” by industry insiders, involve protracted conversations centered on actuarial calculations (the statistical analyses used to assess risk and set insurance rates), usually resulting in a settlement before the public hearing date comes to pass.⁹ The two sides settled, for instance, in June on dwelling insurance rates, with the state Insurance Commissioner, Mike Causey agreeing to an 8% increase, well below the 50% hike the bureau had requested.

An agreement on the homeowners insurance rate hikes, however, could not be reached, and on October 7, 2024, attorneys and staff members from NCRB and the Department of Insurance began their public legal hearing presenting each side’s case. Causey, who won reelection in November to his third term in office¹⁰, announced the hearing’s resulting settlement January 17: North Carolina’s average statewide base homeowners insurance rate will increase by 7.5% on June 1, 2025, and another 7.5% on June 1, 2026. The rate increases, which range from zero in a handful of Western NC counties to 16% in some coastal areas, are, according to Causey, “sufficient to make sure that insurance companies, who have paid out large sums due to natural disasters and face increasing reinsurance costs due to national catastrophes, have adequate funds on hand to pay claims.”¹¹ Without mincing words, the state official thus sums up the situation: Rates are rising to keep the insurance industry financially whole, as natural cataclysms, both in North Carolina and elsewhere, test the system’s solvency.

Home Insurance Market Conundrum: Rate Hikes or Leave

The NC insurance commissioner is an elected official whose mandate is to represent the interests of North Carolina residents while preserving a “robust insurance market” in the state.¹² In fulfilling these obligations, the commissioner is obliged by law to make sure insurance rates are not “excessive” or “unfairly discriminatory” – both terms that Causey cited in rejecting NCRB’s request for a 42% average rate increase.¹³ Yet, the commissioner must also allow private insurers to turn a profit or else they will cancel existing policies and exit the state, which is becoming increasingly common in North Carolina and other states around the country.

Nationwide, the state’s fourth-largest holder of homeowners policies, announced last year that it would not renew 10,525 homeowners insurance policies in Eastern North Carolina, citing concerns related to hurricane risks and the reinsurance market.¹⁴ While contained, this sudden exit from one of the country’s largest insurers has alarmed many industry experts in the state because it may be a harbinger of things to come. Battered by more frequent and intense storms, North Carolina’s robust insurance market could quickly become unstable.

A mass exodus of home insurers is not a science fiction scenario of some future dystopia – it is happening in several states around the country. Seven of California’s largest property insurers – State Farm, Allstate, Farmers, USAA, Travelers, Nationwide and Chubb – have recently announced they would limit new homeowners policies in the state. The California Association of Realtors found in a 2023 survey that nearly 7% of real estate deals fell through because buyers were unable to find affordable insurance.¹⁵ Meanwhile, Florida’s home insurance market has lost more than 30 insurance providers by way of insolvency, policy limiting, or total exits from the state, all in the past three years.¹⁶ Increasingly prevalent and destructive storms, elevated building costs, and widespread insurance fraud have contributed to Florida’s insurance crisis.¹⁷

Some of the Southern California neighborhoods that insurers fled in 2024 burned to the ground earlier this month, as wildfires blazed through urban areas driven by strong Santa Ana winds and long-term drought. The fires, which are still raging as of this writing, have destroyed more than 12,000 structures and will end up causing more than $250 billion in damages – at least $30 billion of which is insured – a humanitarian disaster still unfolding that lays bare the state’s insurance crisis.^18,19 California’s home insurer of last resort, the FAIR Plan, is liable for an estimated $6 billion in losses while the plan holds no more than half that amount in cash and reinsurance.²⁰ (An estimate from financial services analytics firm Autonomous Research puts the losses as high as $8 billion, according to NBC News.)

While the insurance predicaments in California and Florida are well-covered in popular media, home insurance markets are in trouble in states throughout the country. Hurricanes and wildfires are not the only culprits dragging insurance companies into the red – extreme weather events from the mountain west to the great plains to the northeast have caused heavy losses that have these firms re-examining their actuarial models. In 2023, private insurers lost money on homeowners policies, meaning these companies paid more in claims than they collected in premiums, in 18 U.S. states, according to a New York Times analysis. That total is up from 2018, when insurers were in the red in 12 states, and 2013, when insurers lost money in only eight states.²¹

Rising Rates Forcing Many Americans to 'Go Bare'

North Carolina’s home insurance market has remained profitable in nine of the past 10 years, which is good news for maintaining a robust marketplace. Yet Hurricane Helene’s toll has not been tallied, and the early figures indicate that 2024 will be a difficult year for the state’s home insurers not to mention the many North Carolinians who lost everything they had. While NCRB and the state Department of Insurance deliberate on the next homeowners insurance rate increase, one thing is certain: rates are going up.

“Here in North Carolina today, our homes are being subjected to damage from all kinds of perils, but especially catastrophic storms that are getting worse and worse,” NCRB attorney Mickey Spivey said on October 7 in his opening remarks at the public hearing. Also citing inflation, Spivey described the current homeowners insurance rates in North Carolina as “severely inadequate”²² as they fail to compensate for escalating building costs and the increased likelihood of storm-related loss and damage.

Raising the premiums that North Carolinians pay to insure their homes may prevent insurers from fleeing the state by keeping these companies in the black yet mounting monthly insurance bills could drag down the state economy and squeeze consumers to the point where they choose to go without insurance. The rate of American homeowners “going bare” – the industry term for not carrying a homeowners policy – jumped from 5% in 2019 to 12% in 2024, according to an Insurance Information Institute survey.²³ This is a very troubling trend, as a 2024 report published by the Consumer Federation of America estimates the value of uninsured American homes at $1.6 trillion,²⁴ a level of risk exposure that could imperil the nation’s economy.

The problems with North Carolina’s home insurance system will not solve themselves – indeed, they are getting more challenging year by year. There are, however, real solutions that would help strengthen the system, including additional government support for homeowners, policies that mandate disaster mitigation measures, and improvements to risk modeling. Our next piece will take a closer look at these fixes and the changes they would bring to home insurance in our state.

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