Experts Warn Of ‘cycle Of Doom’ As Disasters Overwhelm Last-resort Insurance

A growing number of U.S. homeowners are finding their only property insurance option is their state’s last-resort program, according to a new report from the National Resources Defense Council (NDRC).
Data shows extreme weather driving private insurers from high-risk areas and forcing premiums higher for everyone else.
Last resort programs — known as Fair Access to Insurance Requirements (FAIR) plans — were created to provide limited coverage for properties rejected by private carriers. However, climate-driven disasters are pushing them toward a financial breaking point, as outlined in the report.
Cycle of withdrawals
FAIR policies cover properties that present “tail risks,” or low-probability but high-cost events such as hurricanes, wildfires and severe storms. The more high-risk policies FAIR plans take on, the more they pay out.
When reserves run short, they assess costs to private insurers in proportion to their market share. Insurers sometimes pass those costs to customers through surcharges — further raising premiums and prompting more policyholders to turn to FAIR plans.
Federal Reserve Chair Jerome Powell recently warned that mortgages in some areas may become “nearly impossible to obtain” if insurance withdrawals continue.
Without insurance, mortgage approvals often collapse, leading to defaults and falling property values.
Enrollment rising fast
States including Florida, Louisiana and California have seen dramatic FAIR plan growth, the report shows.
Louisiana Citizens’ exposure — the total insured value — rose more than fourfold from 2017 to 2022, fueled by hurricanes Laura in 2020 and Ida in 2021. Florida’s exposure nearly tripled in the same period.
In California, exposure more than tripled while the plan faced a funding shortfall tied to wildfire claims. Nearly 90,000 new enrollees joined in the first half of 2025 alone.
Nationwide, FAIR plan policies almost doubled between 2018 and 2023, according to rating agency A.M. Best.
Climate change is also shifting historical disaster patterns, with such events now often striking entire regions at once and overwhelming reserves, the report added. FAIR plans still rely heavily on historical weather data to set rates, but past conditions no longer predict future events.
Some plans are reportedly adopting predictive analytics and scenario modeling — but higher climate risk often translates to higher premiums and further market withdrawal.
Proposals for reform
Advocates and some policymakers are calling for structural changes to keep FAIR plans solvent. One recommendation is to prohibit insurers from recouping FAIR plan assessments from their policyholders.
“Allowing insurers to recoup their costs via FAIR plan surcharges undercuts the foundational purpose of these programs by shifting the financial burden away from the broader insurance industry and onto policyholders,” the report stated.
Others say FAIR plans should promote hazard mitigation — such as fire-resistant building materials, defensible landscaping, stronger roofs or elevated foundations in flood zones — and offer premium discounts when homeowners take these steps.
Alabama’s Strengthen Alabama Homes program, for example, provides up to $10,000 in grants for roof upgrades, with insurance discounts up to 55%.
Equity concerns
The report cites that low-income households are often concentrated in high-risk areas due to historic redlining and are more likely to be displaced by insurance costs.
Some experts propose means-tested subsidies for FAIR plan premiums and voluntary relocation assistance. Relocation programs — often funded by FEMA or HUD — have been used mainly for repetitive-loss flood properties. Buyouts require demolishing structures and preserving land as open space, but can reduce future losses and FAIR plan exposure, the report added.
To improve balance sheets, the report suggests that FAIR plans retain surplus funds rather than distributing them to participating insurers, and adopt more flexible investment strategies while maintaining safety and liquidity for claims.
Another proposal is for FAIR plans to issue catastrophe bonds — a form of reinsurance that transfers specific disaster risks to capital markets. These bonds can provide faster payouts after disasters and help stabilize plan finances.
Community coverage
Some suggest new insurance products, such as community-based wildfire coverage tied to large-scale hazard mitigation.
In one northern California forest where private coverage had largely vanished, insurers issued a community policy after prescribed burns and thinning reduced wildfire risk, according to the report.
Subsidies for affordable housing premiums or deductibles in high-risk zones are also being explored, contingent on hazard mitigation upgrades.
Rising premiums for multifamily housing can threaten long-term affordability — especially in subsidized developments.
“Communities facing acute climate risks require hazard mitigation and adaptation measures to help ensure their physical safety and protect their financial well-being,” the report said. “Climate-fueled extreme weather events will not abate unless and until greenhouse gas emissions are dramatically reduced. In the meantime, we must be smart about FAIR plans.”
Without reforms, experts warn, the “cycle of doom” — insurers withdrawing, FAIR plan rolls swelling, and costs escalating — will accelerate and potentially leave millions reliant on limited federal disaster relief.
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