Pricing Climate Risk: Hurricane Models and Home Insurance Over the Last Two Decades

To what extent do rising homeowners insurance premiums reflect growing climate risk? We examine hurricane risk in Florida and how insurers price it. Insurers rely on proprietary, third-party catastrophe models that estimate property-level expected losses. Using data from these models, we describe estimated hurricane risk across the state and how it evolved from 2006 to 2023. Expected property losses from hurricanes increased by 50%. Turning to insurance prices, we collect the premium rate filing data for insurers representing 70% of the total market. Insurers wanting to adjust their hurricane premium rates must file a request with the state regulator and justify the change with hurricane model output. Leveraging discrete updates to hurricane models, we estimate that a $1 increase in expected losses increases hurricane premiums by $5.82. Overall, hurricane premiums increased by more than 200% during our period of study. We consider potential mechanisms and find that the large markup above expected loss appears to reflect 1) reliance in the insurance market on local, limitedly diversified insurers, paired with 2) the rising cost of reinsurance.