Because insurers and banks are already refusing homeowners protection and credit in large numbers. And the banks are passing the risk on to state lenders – above all to the state-affiliated mortgage banks Fannie Mae and Freddie Mac, known from the 2008 financial crisis.
Experts estimate the damage caused by Hurricane Ian at up to 40 billion. The climate crisis is also making hurricanes more dangerous. Insurance analyst Matthew Carletti of JMP Securities summed up the insurers’ considerations to CNN: “When was the last time there was a $30-40 billion loss in Illinois? Never.”
400,000 insurance policies canceled this year
But the storm and the overall climate crisis are likely to have dramatic consequences for homeowners outside of the devastated areas: insurers have long included the risks of extreme weather events such as storms, floods or forest fires in their policies.
The consequences: Correspondingly higher insurance rates and insurers who are withdrawing completely from certain high-risk regions, such as southern Florida. Homeowners are having their insurance policies canceled – 400,000 times this year alone – and have little chance of getting a new one. All of this leads in part to the fact that houses are depreciating in value – while insurance is becoming more and more expensive.
Emergency insurer is stormed
A Florida-owned insurer, Citizens Property Insurance Corp., is now the largest real estate insurer in the sunshine state. It was created in 2002 only as an emergency authority – for all those who were rejected by private insurers.
According to the Washington Post, a dozen insurance companies in Florida have gone bankrupt in the past two years. Many insurers, especially larger ones, have completely or largely withdrawn from Florida. The risk, especially from storms, is now too great for you compared to other parts of the country. The remaining insurers are often regional and relatively small – and are likely to be quickly overwhelmed financially in the event of major disasters such as Hurricane “Ian”. According to the Washington Post, it may be necessary for the state or even Washington to catch these insurers.
problems for a long time
Apart from the particularly high risks of natural disasters there, the problems on Florida’s real estate market are of course also home-made. According to CNN, insurers primarily complain about Florida’s very pro-plaintiff legislation. While there were 3,500 lawsuits against insurers by homeowners in the much larger state of California last year, there were 116,000 in Florida.
Law firms that organize class action lawsuits, on the other hand, see the reason for the many lawsuits as a lack of regulation. Insurers are completely free to determine how much they charge for insurance – and what damage they are willing to cover, hence the many lawsuits.
In addition, while storm damage is covered by home insurers, flood damage is not. In the USA, you have to take out your own policy for this with the state insurer National Flood Insurance Program. According to Florida Senator Jeff Brandes, only about a fifth of homeowners have one.
“Danger for real estate financial system”
The New York Times reported more than two years ago on the trend for banks to push for shorter maturities and significantly higher down payments on mortgage loans for houses along the coast. The classic model – a loan for a house with a term of 30 years and a down payment of 20 percent – is becoming increasingly difficult to obtain in certain regions of the USA.
The head of the FHFA, which oversees Fannie Mae and Freddie Mac, warned late last year that “climate change poses a serious threat to the real estate financial system.” Since then, Fannie Mae and Freddie Mac have had to take climate risks into account in their risk assessment. A scenario similar to that of 2008, when the market for mortgage loans and their derivatives collapsed, is currently not in sight. But the more banks and insurers shift climate change risks to the two state-affiliated lenders, the greater the likelihood that US taxpayers will be asked to foot the bill in the future.
“Social institution” is beginning to falter
The rising costs and the difficulty of getting a loan or insurance for a property in certain regions are slowly but surely leading to a major socio-political shift in the USA: During the depression of the 1930s, the US government House loan with a long term – 30 years – introduced.
The purchase of a house, which had become realistic in this way, became the cornerstone of the economic existence of families. The “New York Times” even described the 30-year mortgage loan as a “social institution”. However, this is precisely what is becoming increasingly endangered as a result of climate change.