In Smokehouse Creek, Texas, more than 1 million acres of land are on fire.

It’s the state’s largest wildfire on record, and the nation’s second-largest¹. Natural disasters like this are one reason the price of home insurance is soaring. Texans now pay some of the highest premiums in the country.

The map below plots the annual cost of home insurance by state.

Unlike most measures of rising insurance costs—which are based on surveys of insurance companies²—the data shown here is based on the premiums homeowners report having actually paid in 2022 (collected by the US Census Bureau). The sample size is large, at over 2 million homeowners.

Climate change is the main reason

The greater frequency and violence of natural disasters is the main reason insurers are charging more for protecting homes.

In addition to Texas, other states with especially expensive insurance include Florida, Colorado, and California. These are all states prone to natural hazards and large annual property losses, according to the Federal Emergency Management Agency’s national risk index³.

Insurance is especially pricey in Texas because the state is vulnerable to nearly every kind of natural hazard, including wildfires, hurricanes, and droughts. Since 2013, Texas has been struck by a billion-dollar disaster every 44 days⁴.

The fact that risks are spread across the state is reflected in insurance premiums, which are high even outside major cities (where we would expect insurance costs to be elevated because of higher property values).

But climate change is only the first of three reasons insurance premiums are rising.

Insurance is also more expensive because of higher replacement cost

The second reason is that the repair of homes after damage has also become more costly. This is a function of higher raw materials prices, steeper wages for labor, and enduring supply-chain bottlenecks.

Higher replacement costs have also been driven by the rising proportion of larger, more expensive homes. The insurance industry says that rebuilding and replacement costs surged 55% between 2019 and 2022⁵.

Insurers are passing the higher cost of reinsurance on to homeowners

The final driver has less to do with climate and housing than financial markets. Insurance companies seek insurance from catastrophic losses themselves, from reinsurance firms. The premiums insurance companies are paying for this protection has risen by about a third over the past few years. Insurers are passing on these higher costs to homeowners.

So far, higher insurance costs haven’t hampered the flow of Americans moving to disaster-prone areas like Texas⁶. But as insurance becomes more costly—or outright unavailable—we should probably expect this to change.