HomeBusinessClimate change is making some homes too costly to insure

Climate change is making some homes too costly to insure

Firefighters pull up to a burning house during the Kincade fire in Healdsburg, California, on Oct. 27, 2019.

Josh Edelson | Afp | Getty Images

As climate change threatens the U.S. with more natural disasters, it’s becoming increasingly costly for Americans to insure their homes ⁠— and it’s only expected to get worse, according to experts.

“These things are occurring more often, and they’re causing more damage,” said Jeremy Porter, chief research officer at First Street Foundation, a non-profit focused on defining U.S. climate risk.

Indeed, there were 20 separate billion-dollar U.S. natural disasters in 2021 — including a deep freeze, wildfires, flooding, tornado outbreaks and other severe weather — costing a total of $145 billion, according to the National Oceanic and Atmospheric Administration

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The uptick in costly climate events, combined with rising costs to rebuild, labor shortages and “demand surges” after natural disasters have triggered higher homeowners insurance premiums, experts say.

“We’re seeing drastic increases,” said Pat Howard, managing editor and licensed home insurance expert at Policygenius.

Some 90% of U.S. homeowners saw premiums jump from May 2021 to May 2022, costing an average of $134 more per year, according to a Policygenius report.

The average increase is 12.1% nationwide, compared to one year ago, but surges have been higher in disaster-prone states like Arkansas, Washington and Colorado, the report found.

Some homeowners have hidden flood risks

Water-damaged items sit outside a house in Squabble Creek, Kentucky, on July 31, 2022, after historic flooding in Eastern Kentucky.

Seth Herald | Afp | Getty Images

These family houses have been around forever, and they may not have a mortgage, so flood insurance may not be required.

Brad Wright

Managing partner of Launch Financial Planning

Standard homeowners insurance policies don’t cover flooding, but protection is available through FEMA or private coverage, which may be required by mortgage lenders. While the average yearly premium is $985, according to ValuePenguin, experts say the cost may be significantly greater in high-risk areas.

Last October, FEMA revamped its program to more accurately assess flood risk, causing insurance premiums for some coastal properties to rise to $4,000 or $5,000 annually, up from just $700 or $800, Porter from First Street Foundation said.  

These hikes may be prohibitively expensive for lower-income families or retirees, especially those who may be living in a property inherited from family, Wright said. 

“These family houses have been around forever, and they may not have a mortgage, so flood insurance may not be required,” he said. “But they should have it anyway.”

Wildfire risk may be costly to insure

Flames burn during the McKinney Fire in the Klamath National Forest on July 31, 2022.

David Mcnew | AFP | Getty Images

If you move into an area that’s prone to wildfires or flooding, that cost goes up dramatically because the carrier is passing that on to the consumer.

Bill Parrott

President and CEO of Parrott Wealth Management

Bill Parrott, an Austin, Texas-based CFP, president and CEO of Parrott Wealth Management, has also seen rising premiums in high-risk regions.

“If you move into an area that’s prone to wildfires or flooding, that cost goes up dramatically because the carrier is passing that on to the consumer,” he said. “That’s a big expense for a lot of people.”

Nationwide, at least 10 million properties may have “major” and “extreme” wildfire risk, according to First Street Foundation.

How to reduce premiums in high-risk areas

Current homeowners may ask their insurance provider about discounts for taking steps to mitigate possible damage from climate events, such as storm-proofing your home, said Howard from PolicyGenius.

You may also save money by shopping around and bundling home and auto policies. Homeowners insurance is no longer a “set-it-and-forget-it” type of thing, he said. 

And if you have sufficient emergency savings, you may consider lowering your premiums by increasing your deductible, Howard said.

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