For decades, Sanibel Island, a beloved vacation destination off the Florida Gulf Coast, was a paradise not just for tourists but also for insurance companies. The island’s 5,000 residents dutifully paid for their home and flood insurance, rarely filing claims and providing insurers with a remarkable return on investment—over $10 in premiums for every dollar disbursed. However, the idyllic status quo was shattered in September 2022 when Hurricane Ian, a devastating Category 4 storm, inundated the island with as much as 12 feet of water. The storm not only decimated homes and condos but also cut off access to the island by collapsing the sole causeway, forcing many residents to evacuate and face an uncertain future.
The aftermath was both staggering and unexpected. Sanibel had long been spared the wrath of severe hurricanes, thanks in part to strategic development limitations and the establishment of a federal wildlife refuge. Yet, its low elevation left many older homes vulnerable, and the storm’s impact was catastrophic. Daniel Moore Thompson, a local resident whose home and gift shop were flooded, recalled, “We had so many good years, 30 or 40 years; we were spoiled. And then Ian happened, and it was like we lost our innocence.”
In mere hours, Sanibel transformed from an insurer’s dream into a financial disaster. The National Flood Insurance Program (NFIP), the primary provider of flood insurance, faced an onslaught of claims totaling $620 million—nearly 100 times the amount paid out to Sanibel homeowners in the previous four decades. The devastation didn’t stop there; neighboring communities like Fort Myers Beach, Cape Coral, and Punta Gorda collectively received over $1 billion in flood payouts. The insurance industry was left reeling, confronting a harsh reality: after years of underestimating the risks associated with climate change, the consequences have become impossible to ignore.
The frequency and intensity of extreme weather events—wildfires in California, torrential rains in the Midwest, and hurricanes like Ian—are challenging outdated models that once assured insurers of stable risks. As sea levels rise and weather patterns shift, the cost of insuring properties in vulnerable areas continues to escalate, threatening to reshape entire communities and housing markets. Dave Jones, former insurance commissioner of California and current director of the Climate Risk Initiative at UC Berkeley, expressed deep concern, stating, “We are marching toward an uninsurable future in this country and across the globe; marching into the abyss.”
Federal Reserve Chairman Jerome Powell echoed these sentiments during a recent Senate Banking Committee hearing, warning that “in 10 or 15 years there are going to be regions of the country where you cannot get a mortgage” due to the unavailability of insurance. This alarming trend is corroborated by economists Carolyn Kousky, Spencer Glendon, and Barney Schauble, who suggest that as natural disasters become more frequent and devastating, the affordability and accessibility of insurance could become a significant concern for many households.
The crisis is palpable. In the wake of rising risks, dozens of insurers in Florida, Texas, Louisiana, and California have either collapsed or declared insolvency, unable to sustain their operations amidst soaring claims. Major national insurers have retreated from high-risk states, drastically reducing their exposure and scaling back policy offerings. In a span of just five years, insurers canceled nearly 2 million homeowner policies, driven by the escalating threat of climate-related disasters. For homeowners like Deborah Brown, who faced a policy cancellation after years with the same insurer, finding new coverage proved to be both difficult and expensive. “That was the straw that broke our back,” she lamented, recounting her experience of being quoted $8,000 for a new policy—more than double her previous rate.
The data illustrate a troubling pattern: states with the highest risk of natural disasters, particularly coastal ones like Florida, are seeing the most significant rates of non-renewals. Even areas previously considered safe from such risks are beginning to feel the pressure, as inland states like Iowa and Oklahoma also see rising insurance challenges. Benjamin Keys, an economist at Wharton, emphasized the urgency of the situation, stating, “People always question: Is insurance going to break? Well, it already broke a long time ago.”
Florida’s response to this crisis has led to the establishment of Citizens Property Insurance Corporation, intended as a last-resort insurer for homeowners in high-risk areas. The corporation has ballooned to one of Florida’s largest insurers, covering approximately 1.4 million policies at its peak. However, its financial viability is now in question as it attempts to offload policies to smaller private insurers, many of which lack the necessary reserves to withstand future disasters.
More than 30 states have also created similar programs, known as FAIR plans, to address gaps in the private insurance market. In California, hundreds of thousands of homeowners have turned to state-backed insurance after being dropped by private companies. Yet, these state plans often come with steep premiums, and analysts warn that the small insurers involved may not have sufficient financial backing. Louisiana, for example, recently raised its FAIR plan rates by over 60 percent following consecutive hurricanes.
As the federal government considers stepping in to stabilize the insurance market, reminiscent of its actions during the creation of the NFIP, the situation remains precarious. The NFIP itself is deep in debt, with billions owed to the U.S. Treasury, and has begun increasing premiums, projecting that the average policy will double in the next five years.
In the midst of this turmoil, housing markets are showing signs of strain. With thousands of homeowners canceling their policies and many more becoming wary of purchasing homes in high-risk areas, the demand for real estate is dwindling. “There’s so much property for sale—maybe five or six houses on every street—and nothing sells. It’s insane,” remarked real estate agent Susanne Perstad, commenting on the stagnation in Fort Myers and Cape Coral.
Back on Sanibel Island, the once-thriving real estate market is grappling with the fallout from Hurricane Ian. Many homes remain on the market for months, with sellers offering steep discounts to attract buyers. Eric Pfeifer, a real estate agency owner, noted how the market has shifted dramatically since the pre-COVID boom, now reflecting a more cautious approach to purchasing amid climate concerns.
Despite the challenges, many residents, like Daniel Moore Thompson, remain committed to their homes, even as they navigate the complexities of insurance and potential future storms. Thompson, who lost significant inventory in his gift shop and has yet to elevate his home, expressed a deep connection to Sanibel: “I get up in the morning, walk out my door and fish. I mean, who doesn’t want to live by the water?” As the climate crisis continues to reshape the landscape of homeownership, the question remains: how long can communities like Sanibel adapt before they are forced to confront an uninsurable reality?
