Homes Are Becoming Harder To Insure Thanks To Climate Change

Wildfires, floods and other climate-related natural disasters are driving up the cost of home insurance, while some properties are being dropped from coverage.

If you were recently dropped by your homeowners insurance company despite never having filed a claim, you’re not alone. Though insurers can decide not to renew a policy for a variety of reasons, increasingly it’s because the home sits in an area that’s at high risk for fire, floods or other disasters. And it’s likely climate change that’s to blame.

Though it’s tough to pinpoint the cause of any one disaster, scientists believe there is a strong link between climate change and extreme natural events, such as wildfires, hurricanes and droughts. For homeowners, this can mean more expensive insurance policies ― or trouble securing coverage at all.

Climate-Related Disasters A Growing Concern For Insurers

“The insurance industry’s ability to assess the prospective risks a property faces has improved dramatically,” said Michael Barry, head of media and public affairs for the Insurance Information Institute. “Nonetheless, homeowners in hurricane- and wildfire-prone states pay for insurance coverage which reflects those risks.” He added that the cost of insurance is usually based on the actual — and, in some instances, anticipated — insured losses a homeowner has incurred in that state.

A majority of U.S. state insurance regulators expect all types of insurance companies’ climate change risks to increase in the future, according to an Insurance Regulator State of Climate Risks Survey that was conducted by the Deloitte Center for Financial Services. More than half of the regulators surveyed said that “climate change was likely to have a high impact or an extremely high impact on coverage availability and underwriting assumptions.”

These types of crises have cut into insurance companies’ profits in recent years, according to David Cusick, chief strategy officer for House Method, a website that provides resources for homeowners. “In the past, governments have been able to mandate coverage in certain areas or provide coverage themselves in some cases,” he said. “Yet as the reality of the damage becomes more persistent, homeowners and insurers alike have to face up to a grim reality.”

In California, for example, where 8,100 wildfires have burned more than 3.7 million acres this year (and destroyed more than 7,000 structures since Aug. 15), home insurance is becoming harder to find in high-risk areas. Not only has the cost of premiums been rising, but data collected by the Department of Insurance also showed that from 2017 to 2018, there was a 6% increase in homeowner policy nonrenewals initiated by insurers in Cal Fire State Responsibility Areas (SRAs). ZIP codes that were affected by fires from 2015 to 2017 saw a 10% increase in insurer-initiated nonrenewals last year.

The same is true for properties in states hit hard by hurricanes in recent years, including Florida, Louisiana, Mississippi and Texas.

That means some homeowners that are now considered uninsurable by traditional insurance companies have had to turn to last-resort options. From 2014 to 2019, for instance, more than 15,000 homes in medium or extreme fire-risk areas have joined the California Fair Access to Insurance Requirements Plan, a bare-bones plan that was created by insurance companies for those who can’t get coverage anywhere else. “However, the price of these plans has risen in recent years, and there’s no clear sign on the horizon that they’ll be going down without some kind of intervention,” Cusick said.

Often FAIR plans cost double or triple that of a regular homeowners insurance policy. In high-risk Sonoma County, for example, where typical home insurance premiums cost $1,000 and up, homeowners with FAIR policies can expect to pay $2,000, $3,000 or more. Further, the FAIR Plan imposed a 20% rate hike in April and plans another double-digit increase for next year, plan President Anneliese Jivan told The Sacramento Bee.

What’s A Homeowner To Do?

Barry noted that insurers are reluctant to issue nonrenewal notices to homeowners. After all, they’re in the business of selling insurance and want to continue to do so. At the same time, though, “the insurer needs to have a market share in high-risk areas which is in line with its ability to pay all the claims the insurer could potentially receive.”

To reduce the chances of receiving a nonrenewal notice, homeowners in high-risk areas should talk to their insurance agent about steps they can take to make their homes more resilient. That may include altering your landscaping, securing loose items and clearing debris.

Cusick said it’s inevitable that homeowners in high-risk zones will either have to move or prepare for a new reality. “Strong community ties are what have gotten people through the worst of what we’ve seen thus far — having your own preparedness plans to handle likely future events is critical.”

He added that when it comes to finding adequate insurance, explore all the plans available on the marketplace and talk to neighbors about what they’re considering. “Options are increasingly limited, so make sure you’ve pursued the full range of what’s out there.”

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