My parents have finished paying off the mortgage on their home and are wondering weather it would be more profitable to sell their home or rent it out. 

Those that cannot weather the storm get wiped out.Having cashflow positive properties provides a margin of safety you just do not have with negative cashflow.Why are you focused on buying in your backyard? 

Over priced, layout is awkward, junky neighbors, back on market/under contract multiple times, bad photos, bad timing(got buried from other listings, weather occurrence, etc). 

Don't take a break when the weather is terrible.

My biggest sticking point is they have severe weather; floods, hail, tornadoes, etc.

If you're prospecting the entire coast, just keep in mind travel times for tours and be mindful of the weather.

At about half of my properties I provide quarterly exterior pest control services.

Some level of protection will almost certainly be provided as opposed to some sort of outright ban.  

the insurance companies are not charities; they deserve to make reasonable profit for providing the insurance.  

I wholeheartedly believe in the end you will come out ahead, but you must be prepared to weather potential storms with the strain of limited to no cash flow, which can be challenging.