2023-09-20 10:39:00
(CNN) — Millions of American homeowners could see insurance rates rise in the coming years, in part because of worsening climate disasters, new data shows.
An analysis of the non-profit research group First Street Foundation revealed that nearly 39 million homes and businesses — about 27% of properties in the lower 48 states — are at risk of skyrocketing premiums as insurers struggle to cover the rising cost of reconstruction after disasters.
It’s another alarming sign for the future of the US home insurance market. In recent years, major insurers have pulled out or stopped writing new policies in California, Florida and Louisiana, in part citing increased climate risks such as more destructive wildfires and stronger hurricanes.
But while insurance prices have already risen in those states, First Street has found that they continue to rise in other places we consider less risky.
“This is not an isolated phenomenon in certain areas of the country, but will affect other areas that we traditionally don’t think about,” says David Jones, former California insurance commissioner and director of the Law Center’s Climate Risk Initiative. Energy and Environment at the University of Berkeley, which was not involved in the analysis.
According to Jeremy Porter, head of climate implications at First Street and one of the report’s lead authors, the insurance industry is just beginning to include the cost of climate change in its premiums.
“We are still at the forefront of pricing climate risk in the real estate market by the insurance industry,” Porter told CNN. “Insurers will continue to respond to increasing climate damage.”
For homeowners, this also means fewer choices between companies as private insurers withdraw from high-risk areas or restrict coverage.
A person inspects damage in Matlacha, Florida, on Sept. 29, 2022, after Hurricane Ian. (Credit: Matias J. Ocner/Miami Herald/Tribune News Service/Getty Images)
According to First Street, nearly 7 million properties – nearly 1 in 20 buildings – have already experienced price increases or been written off by insurance companies. Most of these properties are in wildfire- and flood-prone California or hurricane-prone Florida, Louisiana and Texas.
But the problem is growing across the country. Jones was referring to the recent extreme flooding that hit Vermont this summer, which saw up to 250mm of rain fall in some parts of the state over two days and submerge Montpelier, the state capital. Kentucky and West Virginia have been hit by deadly and costly flooding caused by torrential rains that, combined with steep terrain, have overflowed small streams and creeks.
“It’s difficult to identify a part of the country that hasn’t been affected or won’t be affected,” Jones told CNN. “And it’s only going to get worse.”
Increase in insurance premiums
According to an analysis of First Street data, all properties in more than one in ten American cities are at risk of premium increases due to climate disasters. These include places in states where insurers have already begun to withdraw, such as Miami, Jacksonville and New Orleans.
Outside of California, Florida and Louisiana, there are also cities where all properties are vulnerable to sudden price adjustments, primarily along the East Coast, where hurricane risk is high and sea levels are rising, surveys show. data, including Atlantic City, New Jersey; Virginia Beach and Norfolk, Virginia; Wilmington, North Carolina; Charleston, South Carolina; and Savannah, Georgia.
Premiums are at risk of rising to a lesser extent in other cities across the country, according to First Street data.
Properties in 4 out of 5 cities in the lower 48 states are vulnerable to rate hikes, including more than 25% of properties in New York and Phoenix. In the Midwest, up to one-fifth of households in Chicago, Pittsburgh, Louisville and Cincinnati — susceptible to torrential rains and strong winds — are also at risk of premium adjustments. And on the West Coast, nearly all of Riverside, California, and a fifth of Los Angeles could see premiums rise.
Even though these households are not yet on the state insurer of last resort—to which they typically pay higher premiums for a policy that covers less—“they have the same risk profile,” Porter says.
Although this dynamic has just begun in the private insurance market, the price shocks have already reached homeowners in the federal government’s flood insurance program. Federal flood insurance premiums—known as the National Flood Insurance Program— increased significantly from 2021as the federal government adjusted the cost of the strongest storms.
The most flood-prone areas of the Gulf Coast states will be especially affected by rate increases as the plan is implemented in the coming years; In Plaquemines Parish, Louisiana, FEMA data shows their insurance premiums would rise 545%, from $842 to $5,431 a year. In Collier County, Florida, hit by Hurricane Ian last year, the expected increase would be from about $1,050 annually to almost $4,000.
Implications beyond the insurance market
The math doesn’t work for some homeowners who have seen their premiums skyrocket.
“When you see this huge increase — doubling, tripling, quadrupling your insurance rate — suddenly those finances don’t make sense to regular people,” he said.
Faced with rising premiums, some homeowners without a mortgage are choosing to forgo insurance altogether, leaving them unprotected in the event of a catastrophe, according to Amy Bach, executive director of United Policyholders, an insurance consumer advocacy group.
It’s difficult to know exactly how many homeowners choose to “go bare” without insurance, Bach explains, because he believes many are unwilling to disclose their choice. But his work with homeowners gives him insight into people’s decisions.
“I know where people are giving up their insurance: Florida, Louisiana, California and Colorado,” Bach told CNN. “And soon there will be other places, because this is a national virus.”
Residents watch part of the Sheep Fire burn across a hillside near their homes in Wrightwood, California, on June 11, 2022. (Credit: Kyle Grillot/Archyde.com)
Jones and Porter said there are bigger financial implications down the road when homeowners who have taken a higher premium try to sell their home and discover they are short of buyers.
Jones noted that in some wildfire-prone areas of California there is already evidence that a lack of affordable insurance is affecting home prices.
“It is logical that, if you buy a house, you ask yourself the question of how much it will cost to insure it and if I can get insurance.” Jones says.
If the answer is that insurance is too expensive and difficult to get, “then buyers will say, ‘I’m not going to pay that much for this house, because it’s just not worth that much.'”
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