By Ella Nilsen and Krystina Shveda | CNN
According to new data, millions of American homeowners may experience a surge in insurance rates in the coming years due to worsening climate disasters. This analysis, conducted by nonprofit research group First Street Foundation, reveals that nearly 39 million homes and commercial properties, accounting for about 27% of properties in the Lower 48, are at risk of premium increases as insurers struggle to cover the rising cost of rebuilding after disasters.
The future of the American homeowners’ insurance market is in jeopardy, as major insurers have already withdrawn from or ceased writing new policies in high-risk areas such as California, Florida, and Louisiana. These insurers cite increased climate risks, including more destructive wildfires and stronger hurricanes.
However, the problem extends beyond these traditionally high-risk areas, as insurance prices continue to rise in other regions. David Jones, the former California insurance commissioner and director of the Climate Risk Initiative at UC Berkeley’s Center for Law, Energy, and the Environment, states that this issue is not isolated to specific parts of the country, but will also impact areas traditionally considered less risky.
Jeremy Porter, the head of climate implications at First Street, explains that the insurance industry is only beginning to factor in the cost of climate change when determining premiums. He states that insurance companies will continue to respond to the increasing climate damages.
As a result, homeowners will have fewer choices between companies, as private insurers withdraw from high-risk areas or impose coverage restrictions. First Street’s data reveals that nearly 7 million properties, or almost 1 in 20 buildings, have already experienced price surges or have been dropped by insurance companies. The majority of these properties are located in wildfire and flood-prone regions such as California, Florida, Louisiana, and Texas.
However, this issue is escalating across the country. Recent extreme flooding in Vermont, as well as deadly and costly flooding in Kentucky and West Virginia, demonstrate that no part of the country is immune to climate impacts. Jones emphasizes that the situation will only worsen.
Surging premiums
An analysis of the First Street data indicates that every property in more than 1 in 10 American cities is at risk of premium spikes due to climate disasters. This includes cities in states where insurers have already started to withdraw, such as Miami, Jacksonville, and New Orleans.
Along the East Coast, where hurricane risk is high and sea levels are rising, cities like Atlantic City, New Jersey; Virginia Beach and Norfolk, Virginia; Wilmington, North Carolina; Charleston, South Carolina; and Savannah, Georgia, have all properties vulnerable to sudden price adjustments.
The data also shows that premiums are at risk of surging in cities across the country. In 4 out of 5 cities in the Lower 48, more than 25% of properties in New York City and Phoenix are vulnerable to rate hikes. In the Midwest, homes in cities like Chicago, Pittsburgh, Louisville, and Cincinnati, which are susceptible to flooding rains and strong winds, also face the risk of premium adjustments. On the West Coast, nearly all of Riverside, California, and a fifth of Los Angeles could see premiums spike.
Even if these homes are not insured by the state-run insurer of last resort, they still carry the same risk profile. Porter highlights that while this dynamic is just beginning in the private insurance market, homeowners in the federal government’s flood insurance program have already experienced significant premium increases to account for the cost of stronger storms.
Implications beyond the insurance market
Many homeowners are grappling with the financial implications of skyrocketing premiums. Some homeowners without mortgages are choosing to forgo insurance altogether, leaving them unprotected in the event of a disaster. Amy Bach, the executive director at United Policyholders, states that it is challenging to determine the exact number of homeowners going without insurance, as many are reluctant to self-report their choice.
Jones and Porter emphasize that there are broader economic implications in the future when homeowners with higher premiums try to sell their homes and discover a lack of interested buyers. In parts of California prone to wildfires, evidence already suggests that the unaffordability of insurance is affecting home prices.
Ultimately, the impact of rising insurance rates extends beyond the insurance market. Homebuyers will consider the cost of insuring a property and its availability when determining its value. As the insurance market continues to grapple with climate risks, homeowners and the real estate market will face significant challenges.
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