As climate change intensifies wildfires, floods and hurricanes, premiums for homeowners are increasing dramatically and insurers may drop coverage in areas considered too risky to cover.
Homeowners should prepare for climate change by understanding its implications on their policies, as well as adapting their homes for climate change.
Extreme Weather Events
Homeowners insurance is the cornerstone of many Americans’ financial security, and any loss to one’s home can quickly devastate savings. Yet climate change presents homeowners with several risks to their homes that make finding adequate, affordable home insurance increasingly challenging; such as increased natural disaster damage, rising premiums/deductibles/risk zones.
Private insurance companies generally base their rates on past weather events to assess how much risk each homeowner and property poses to them, then calculate an “cost of risk,” which determines premium costs. If potential risks become too great, insurers may refuse to issue policies or increase premium costs accordingly.
However, as our planet continues to become hotter and more extreme, such modeling no longer accurately represents a future shaped by climate change. As such, some private insurance companies have begun withdrawing from areas prone to floods or wildfires or making it more difficult for residents to obtain coverage in these regions.
As climate change brings with it natural disaster damage costs, they have resulted in higher homeowner’s insurance premiums. Some insurers are raising rates significantly and adding exclusions or deductibles in an attempt to manage these increased financial risks of living in an ever-evolving world; leaving many families unable to afford their policies or even being forced out.
Some states are taking action to address these issues as well. New York state agencies, working alongside insurers, are developing strategies for mitigating the financial impacts of climate change on properties and homeowners. They’re also using an innovative tool called Risk Factor that allows consumers to enter their zip code and see their risk for flooding, wildfires and heat waves.
Some homeowners may need to relocate or build a home that can withstand climate-change related risks better. Others can find relief through energy efficiency measures and other mitigation techniques.
Wildfires
One of the world’s largest insurers made waves recently when its chief risk officer made headlines by declaring that a world warmed by 4degC (7.2degF) will become “uninsurable.” Rising global temperatures have already rendered certain parts of our planet uninsurable; insurers are already reassessing risk exposures, raising premiums or cancelling policies altogether due to rising global temperatures.
homeowners across the nation are finding out their homeowner insurance policies have either been dropped altogether, or have seen substantial price increases related to climate change. Rising temperatures fuel drought and wildfire, while bark beetles kill millions of trees every year.
As the costs associated with catastrophes mount, insurers are reconsidering their risk. Coverage has decreased among homes; premium increases may not cover increasing expenses and losses quickly enough; some markets could even close entirely; increased flooding or sea level rise could add further expenses associated with hurricanes, tornadoes or flooding events.
As a result, people are being dropped from their insurance plans, leaving them without protection when disaster strikes. This trend has especially severe effects in vulnerable communities that rely on affordable homeowner’s insurance to manage risk and recover from natural disasters.
However, steps can be taken to improve the situation. Governments and private organizations alike can work together to implement best practices for mitigating climate change risks, including using models of future risk to inform premium pricing models or creating community-based insurance models that allow people to pool purchases to reduce overall costs.
Insurance companies should encourage policies that incentivize environmentally friendly practices such as elevating homes to protect from flooding and encouraging landowners to adopt sustainable forest management techniques to lower wildfire risks. Finally, policyholders should support their local and state lawmakers’ pushes for improved fire management strategies in order to mitigate damage from large wildfires while simultaneously lowering insurance premiums.
Floods
Climate change is increasing rainfall and flooding across the US. More intense floods have led to greater damage for homeowners, leading to higher insurance claims and premiums as a result of insurers withdrawing from areas at high risk such as coastal regions or regions near rivers. Some homeowners may also experience subsidence caused by climate change-driven prolonged dry spells that shift the ground beneath their home, or subsidence, in which ground shifts beneath it as it sinks due to shifting and sinking foundations.
In the US, the National Flood Insurance Program provides most residential flood coverage; however, due to rising risks, its ability to remain afloat has become increasingly challenging, prompting private insurers to withdraw from high-risk markets as well and leaving homeowners in these communities struggling to find affordable coverage and leaving themselves exposed in case of disaster.
Some insurers are also implementing exclusions for certain forms of damage, such as flooding and wildfire. While these measures aim to manage climate change-induced financial risk for insurers, these policies make it harder for homeowners to find sufficient coverage even if they can afford increased premiums.
Insurance companies are taking steps to adapt to climate change by adopting new models and revising existing ones, in order to account for increased risks associated with global warming. These new models incorporate both current and future hazards rather than relying on outdated data that does not accurately depict global warming trends.
Homeowners should routinely review their policies to understand the risks they are exposed to in their area. Implementing mitigation measures and keeping accurate records can reduce costs in an emergency situation, while making sure your policy provides all required coverage is vital in safeguarding investments.
Many Americans use their homes as an asset-building strategy, with homeowner-occupied properties accounting for one quarter of household net worth. Unfortunately, when insurance rates become prohibitively expensive for many individuals and households, people may become unable to afford these premiums and opt not to purchase homes altogether – leaving themselves vulnerable in case of disaster and undermining the housing market in general.
Hurricanes
Homeowners insurance helps families recover faster after disaster strikes by mitigating its cost and helping families reestablish themselves quicker. Unfortunately, climate change is making it harder for people to obtain affordable and reliable homeowners coverage; insurance companies are reassessing risks and changing policies which could result in increased premiums or the uninsurability of some properties.
Increased hurricanes, wildfires and floods are costing insurers an increasing sum. To limit losses caused by rising catastrophes, some have pulled out of high-risk regions altogether while others raise premiums or deductibles to limit exposure – leaving many homeowners struggling to afford adequate coverage or opting out altogether.
These policy changes are having an effect on homeowners across the nation, but their effects are particularly acute in states like Florida and California that already face high risks from climate change-induced natural disasters. Without homeowner’s insurance, families could quickly find themselves without shelter after disaster strikes; low-income households in particular are at greater risk due to skyrocketing insurance premiums and mortgage payments that cannot keep pace with costs.
Some homeowners are taking measures beyond simply changing their insurance policies to help reduce the impact of climate change on their properties, including installing storm shutters and other weather-resistant features that can protect from storm surges and wind-driven rainstorms. Some insurers even provide discounts for taking such precautions.
Some state regulators are encouraging insurers to devise strategies for mitigating the effects of climate change on homeowners’ insurance, including looking ahead at risks rather than simply looking backward at historical data and using models which consider potential effects like sea level rise and climate change-related factors.
As climate change creates more extreme weather events, homeowners’ insurance is likely to increase in cost. To lessen its effects on individual policy holders’ finances, preventive measures and weather-resistant home improvements may help minimize this increase.
