Insurance challenges could impact the future of home sales
As climate disasters increase, insurers are retreating, leaving homeowners with fewer, costlier options — and causing home sales to fall out of contract.
Key points:
- In California, insurance-related transaction cancellations nearly doubled between 2023 and 2024.
- State-run plans are becoming the last resort for homeowners, but are often overexposed or fail to cover claims.
- Credit scores can impact premiums more than actual climate risk in some cases, disproportionately affecting lower-income buyers.
A lack of affordable and attainable homeowners insurance isn't just an issue for prospective buyers. It could become a significant problem for the real estate industry if it causes more transactions to be delayed or canceled.
Insurance woes in two states — California and Florida, which account for more than 20% of the nation's current listings — offer a glimpse of what the future might hold.
In the Golden State, failed sales are on the rise
Last year, 13% of California Realtors reported that at least one sale fell through because buyers could not secure homeowners insurance — nearly double the rate of the previous year.
This scenario is expected to become more common as the one-year moratorium on insurance cancellations for many California homeowners in wildfire disaster areas expires in January.
"It's very likely that more insurance companies will pull out of some areas in California, and this insurability crisis is only going to get worse in 2026," said Patrick Blandford, founder and CEO of property insurance company Green Shield Risk Solutions.
While California has a state-based insurance option — the FAIR Plan, an insurer of last resort — the plan's exposure has more than doubled in less than two years to $650 billion, raising concerns about its ability to pay claims after a major disaster, such as January's massive LA fires. With solvency in mind, the FAIR Plan indicated in early October it was looking to raise premiums by nearly 36% due to the cost of covering wildfire claims.
Insurers are fleeing the Sunshine State
The spiraling insurance crisis in California increasingly mirrors the one in Florida, as insurers in both states retreat and costs soar, serving as a stark warning for other parts of the country.
The devastation of Hurricane Andrew in 1992 set the stage for insurance pullbacks in Florida, and a series of destructive hurricanes between 2017 and 2024 caused billions in damage — a trend that seems likely to continue as natural disasters become more frequent and more costly.
A slew of insurance companies have left the Sunshine State or reduced coverage in recent years, pushing hundreds of thousands of homeowners into Florida's insurer of last resort, the state-backed Citizens Property Insurance Corporation.
But even that option appears to be failing many of the state's claimants. A recent ProPublica investigation found that Citizens wins over 90% of disputed claims in a mandatory arbitration process it helps fund, leaving homeowners with little recourse.
State-run plans also often have the authority to impose surcharges on nearly all insurance policies in a state to cover deficits, spreading the risk across the entire population.
A growing national crisis
Blandford said hurricanes are often more costly than wildfires because storms can cover hundreds of miles. As Hurricane Helene proved last year, major storms are also moving deeper into the country.
"They're achieving higher northern latitudes than they ever have, putting a lot more people at risk, and they recognize that they don't have to live within a mile of the coast for a hurricane to be a problem," Fred Malik, managing director of FORTIFIED, the Insurance Institute for Business & Home Safety's resilience program, told The Builder's Daily in May.
This breakdown of traditional insurance models, which can no longer accurately predict the frequency of modern disasters, is forcing a retreat. This pushes more residents into state-run plans that often provide less coverage at higher prices and may lack the financial reserves to handle a catastrophic event.
For homeowners, this creates a daunting new landscape where finding a safe and insurable location is increasingly difficult.
"There aren't a lot of places that you can hide," Blandford said. "There are certainly areas that are definitely riskier than others."
He noted that in California or Colorado, it might be better to live close to a city versus a forested area or at least a mile off the coast.
"So, you see more and more property values built up in areas where there's a great view of the water or a great view of the mountain, and those are the areas that are most exposed," Blandford said.
Other barriers disproportionately affect some homeowners
In some cases, the challenges extend beyond finding an insurer in a climate-ravaged area. A homeowner's credit score can be a more significant factor in determining their premium than their property's disaster risk, according to a 2025 report from the Consumer Federation of America.
"The insurance industry is gaslighting us when it says they price homeowners insurance policies to reflect climate risk," Moira Birss, senior fellow with the Climate and Community Institute, said in a statement when the report was released.
"Climate change is driving dramatic changes that demand an honest assessment of risk and housing, but instead of proactively helping to reduce the risks the insurance companies are penalizing poverty."
Unlike California, which prohibits using credit scores to set home insurance rates, Florida allows it. The Consumer Federation of America found that a homeowner with a low credit score pays nearly $2,000 more per year for insurance than an identical neighbor with a high credit score.