What Effects Will Climate Change Have On Homeowners' Insurance?

Extreme weather events have become more frequent and severe. They will continue to due to climate change, posing a greater danger to homes and insurers and possibly increasing homeowners insurance premiums.

Climate change will expose homes across the United States to new or intensified threats.

Insurance firms are beginning to review risk in light of climate change, resulting in higher premiums or cancellation of coverage in places particularly susceptible to wildfires and storms.

Even though climate change may affect homes in diverse ways, policyholders will undoubtedly face increased premiums and deductibles. At the same time, insurers will become more selective in offering coverage and may reduce payouts.

What effects will climate change have on homeowners' insurance?

According to the world's largest reinsurer, Swiss Re, the cost of property lost to natural disasters such as wildfires, floods, and hurricanes could climb by over 60 percent in the United States by 2040.

Due to climate change, Swiss Re predicts that global homeowners insurance premiums may climb by 5.3% annually through 2040.

As a result of climate change, wildfire seasons may become longer and more intense. Hurricanes of categories 4 and 5 may become more frequent, and tropical storm precipitation may increase by up to 20 percent. Increased precipitation across the United States may increase the likelihood of "100-year floods" on rivers. Along coasts, the effects of sea level rise will be floods.

Already, the effects of climate change are evident. According to Aon, the number of natural disasters causing at least $1 billion damages was significantly above average in 2020 and 2021. These years generated a total insured loss of $176 billion in the United States, smashing the previous record established in 2004 and 2005.

As a result of climate change, insurance companies may already be reconsidering how they underwrite properties, particularly in sensitive local markets. And policyholders are beginning to experience the consequences.

After five years of record-breaking wildfire losses, insurance firms have hiked rates for homes in vulnerable locations and even dropped certain policyholders they believe in dwelling in too unsafe of an area.

Some coastal residences are becoming uninsurable on the primary market as insurers reevaluate the risks posed by rising sea levels.

Those who did not have flood insurance because they were not in a high-risk location found themselves in difficult financial situations after major flooding disasters, such as Hurricane Ida's leftovers flooding vast portions of New York City.

In addition, insurance firms penalize homeowners for failing to mitigate against harsh weather and wildfires.

Climate change resulting in more severe hurricanes and precipitation, as well as rising sea levels, pose a threat of flooding along the Texas coastline. Houston, Corpus Christi, and Port Arthur are especially vulnerable.

• During the monsoon season in Texas, West Texas, especially El Paso, could expect more rainfall.
• 1.15 million Texas properties are at high risk of flooding. By 2050, this total is predicted to rise by 16 percent to 1.33 million.
• Climate change-induced drier conditions will raise the risk of wildfires in the state.
• Seven percent of homes in Texas, or approximately 718 thousand properties, are at risk of wildfires.

What should policyholders of homeowners insurance do to prepare for climate change?

• Acknowledging the potential impact of climate change on your homeowner's insurance coverage is an essential first step in planning for the future.
• To prepare for the potential effects of climate change on homeowner insurance, policyholders can take the following additional steps:
• Determine whether climate change may exacerbate existing weather threats to your property, such as flooding, wildfires, and violent storms, or generate new ones.
• Examine your homeowner's insurance coverage to ascertain which risks are and are not covered. Determine if you need additional insurance, such as flood insurance.

Contact your homeowner's insurance carrier to find out whether you are eligible for any savings for making your home more resistant to the effects of climate change. Determine if your state offers rewards for similar actions.