Millions of American homeowners like Mary Morse find themselves stuck in a financial bind, facing mounting risks from wildfires and floods linked to climate change while their home insurance rates rocket upwards. Increasingly, the crowning blow comes when insurers withdraw coverage, leaving individuals and even entire communities vulnerable.
"I got a letter from my insurance company that said, 'We're not going to serve your area anymore'," Morse, 75, told CBS News about her Pine Cove, California, home. "I even sent [the insurance agent] a picture of my fire hydrant. It didn't help."
The growing risk of wildfire means that some parts of California are becoming "essentially 'uninsurable'," according to a new analysis from the First Street Foundation, a non-profit that studies climate risks, shared first with CBS News. The research has alarming implications for homeowners across the U.S., with even residents of inland states such as Kentucky, South Dakota and West Virginia facing sharply higher insurance costs because of increased damage from extreme weather that experts attribute in part to climate change.
About 35.6 million properties — one-quarter of all U.S. real estate — face increasing insurance prices and reduced coverage due to high climate risks, the analysis found. The rise in insurance costs isn't merely a hit to homeowners' budgets, however — the higher costs also devalue their properties, First Street said.
"You're talking about getting a letter in the mail that says somewhere between 60%, and as high as mid-80%, increases for policies," First Street CEO Matthew Eby said. "That is crippling. Absolutely crippling. And so those homes are not, from an investment scenario, something that you would invest in."
Morse said she put her house on the market for a year, but it didn't sell — a failure she ascribes to the recent rise in mortgage rates as well as her insurer withdrawing from her region.
"The interest rates went up at the same time as the fire insurance went away. And I think a combination of that made it really difficult for people to purchase houses," she said.
Pine Cove, located in Riverside County, California, just over 100 miles southeast of Los Angeles, ranks as one of the 10 worst zip codes for insurance non-renewals in the U.S, according to First Street. The firm also found that Riverside County is most at risk to losing homes and other properties due to wildfires each year.
Morse ended up getting insurance through her state's "insurer of last resort," the California FAIR plan. But at a cost of almost $2,000 a year she's paying twice as much for coverage that isn't as extensive as her previous policy, and she said she's worried the rate is likely going to keep going up.
"I'm 75 years old and I'm still working so that I can afford my mortgage," she said. "If this continues to increase the way it's been increasing, I'm going to have a problem."
Several major insurers have stopped renewing policies in climate-hit states, with Allstate and State Farm recently announcing they were dropping some coverage in California and AAA opting not to renew some policies in Florida.
When that happens, state-run "insurers of last resort" programs provide some coverage for homeowners, although First Street noted that the premium is often "multiple times" the cost of their lost policy and provides less coverage.
For its part, the insurance industry says that the frequency and severity of claims are on the rise, making insurers more cautious in deciding where to offer coverage. "[T]his increasing cost of claims will be passed on to consumers in the form of higher insurance premiums," the National Association of Insurance Commissioners told CBS News in response to First Street's findings.
Despite such challenges, millions of Americans continue to move to regions prone to extreme weather and natural disasters.
"Humans are not that rational. So there's a lot of people that just want to live in Florida because it's beautiful and it's by the ocean and it has the sunshine," Eby said. "And so, as long as that's happening, then this risk bubble, the insurance bubble that we see, is going to continue to grow."
An insurance company deciding not to renew coverage against risks like fires and flooding can instantly devalue a property.
First Street found that a Florida homeowner who is dropped by an insurer could see the property's value decline 19% to 40%. That's because the homeowner would need to obtain coverage from the state's insurer of last resort, Citizens Insurance Agency. Citizens' higher insurance rates would lower the value of the home, First Street noted.
Some homeowners in regions with a higher risk of climate disasters are taking things a step farther by foregoing disaster insurance altogether.
Take Jack Anderson of Key West, Florida. Anderson told CBS News he dropped windstorm and flood coverage when prices got "crazy." He estimated that his home would require $7,000 a year to insure through Citizens. As a result, he and his wife decided to drop the disaster coverage, although he noted they have homeowners insurance, "just so nobody thinks we're truly insane."
Anderson said his 115-year-old home has been through a lot of storms.
"Like the investors say, past performance is no guarantee of future returns," he told CBS News. But, he added, "We don't know what's going to happen here as these storms get worse and worse, but it just feels like it makes more sense for us" to set the money aside themselves in case they need to make repairs from a storm.
The insurance industry is raising rates, demanding higher deductibles or even withdrawing coverage in regions hard-hit by climate change, such as Florida and Louisiana, which are prone to flooding, and California because of its wildfire risk.
But other regions across the U.S. may now also exist in an "insurance bubble," meaning that homes may be overvalued as insurance is underpricing the climate change-related risk in those regions, First Street said.
Already, 6.8 million properties have been hit by higher insurance rates, canceled policies and lower valuations due to the higher cost of ownership, and an additional 35.6 million homeowners could experience similar issues in the coming years, First Street noted.
"At the end of the day, we've been building in the wrong areas, with the wrong building codes, and we've been suppressing rates and telling people it's OK for decades," Eby said. "And all of that is coming to a head right now because insurance is at the very tipping point of the cost of all of those decisions we've made in the past."
—With reporting by CBS News' Ben Tracy