The climate is changing, and with it, so too is the cost of insuring a property against increasingly common natural disasters. For a while, property owners have been insulated from these disasters by property insurance, the very reason that property insurance was invented. In most states, what property insurers are allowed to charge is highly regulated, helping keep premiums down for property owners even as repair costs rise.

But the insurance industry was not going to sit by while it continued to take losses. Insurers started pulling out of risk-prone states like California and Florida, forcing those states to offer their own state-run insurance companies. Those organizations have helped create an affordable option for property owners. Still, they have also put the states at risk for major losses because they are often not able to sell these policies to reinsurers. These giant companies are set up to buy policies and indemnify properties over a long time span.

Now, we are seeing states look for ways to reestablish a “healthy” property insurance industry. Florida’s Citizen Insurance and California’s FAIR plan are both trying to create private alternatives and find reinsurers for the growing number of policies that they are creating. To do this, they need to renegotiate new arrangements with insurance companies.

California is one of the most highly regulated property insurance markets; the state has legislation saying that insurance companies can’t factor reinsurance costs into policy prices. But new proposed regulations from the state will allow reinsurance to be considered, which will inevitably hike prices. In exchange for industry-requested regulatory changes, California’s Insurance Commission would require insurers to provide 85 percent of their policies in “high-risk” areas.

Florida has been hit hard by hurricanes in the last few years and has had insurance costs spike more than any other state. Even with the higher rates, many insurance companies have pulled out, making Citizen Insurance the largest single-property insurer in the state. Florida has its own set of proposed regulations aimed at solving the problem. They include limiting who can apply for insurance and creating a state-sponsored reinsurance option.

It isn’t just these states that are being affected by climate risk. Property insurance prices are up around the country, in some instances by double digits. States will need to find solutions. As good as state-funded insurance “backstops” can be, they, too, have their limits. States and insurance providers are re-examining their relationships, and so far, it looks like the governments are learning that they need private industry to provide insurance options. What those options will be and how much they will cost is still to be determined.

🔗 Chain gang: The city of Baltimore is spending $250,000 to start a new program to use blockchain technology to help it track its roughly 13,600 vacant properties.

⚖️ Guilty by associations: NAR has already been getting lots of bad press, but a new article in The New York Times is suggesting the recent lawsuits could be an “extinction event” for the trade group.