Firefighters stop in front of a burning house during the Kincade Fire in Healdsburg, Calif., October 27, 2019.
Josh Edelson | AFP | Getty Images
As climate change threatens the United States with natural disasters, it’s becoming increasingly expensive for Americans to insure their homes—and it’s only set to get worse, experts say.
“These things are happening more often and causing more damage,” said Jeremy Porter, director of research at the First Street Foundation, a nonprofit focused on defining climate risk in the United States.
Indeed, there were 20 separate billion-dollar natural disasters in the United States in 2021 – including deep freezes, wildfires, floods, tornado outbreaks and other severe weather events – costing a total of $145 billion, according to the National Oceanic and Atmospheric Administration.
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Experts say the rise in costly weather events, combined with rising reconstruction costs, labor shortages and “surges in demand” after natural disasters have triggered higher insurance premiums for owners.
“We’re seeing drastic increases,” said Pat Howard, editor and licensed home insurance adjuster at Policygenius.
According to a report by Policygenius, some 90% of US homeowners saw their premiums jump from May 2021 to May 2022, costing an average of $134 more per year.
The average increase is 12.1% nationwide, compared to a year ago, but surges were higher in disaster-prone states like Arkansas, Washington and Colorado, according to the report.
Some Homeowners Have Hidden Flood Risks
Water damaged items lie outside a home in Squabble Creek, Ky., July 31, 2022, after historic flooding in eastern Kentucky.
Herald Seth | AFP | Getty Images
Brad Wright, certified financial planner and managing partner of Launch Financial Planning in Andover, Massachusetts, said erosion and sea level rise are growing concerns for clients interested in coastal properties.
When someone is considering buying a home along the beaches of southern Maine, for example, there are always questions about flood risk and the cost of insuring the property. Depending on the answers, they can choose another house.
Yet homeowners may unknowingly buy or own in flood-prone areas. While the Federal Emergency Management Agency identified 8 million properties at risk of flooding over 100 years, the First Street Foundation found nearly double the amount in a 2020 report.
Standard home insurance policies do not cover flooding, but protection is available through FEMA or private coverage, which may be required by mortgage lenders. While the average annual premium is $985, according to ValuePenguin, experts say the cost can be significantly higher in high-risk areas.
Last October, FEMA revamped its program to more accurately assess flood risk, raising insurance premiums for some coastal properties to $4,000 or $5,000 a year from just $700 or $800, said Porter of the First Street Foundation.
These hikes can be prohibitively expensive for low-income families or retirees, especially those living in inherited family property, Wright said.
“These family homes have been there forever, and they may not have mortgages, so flood insurance may not be necessary,” he said. “But they should have it anyway.”
Wildfire risk can be expensive to insure
Flames burn during the McKinney Fire in the Klamath National Forest on July 31, 2022.
david mcnew | AFP | Getty Images
Although wildfires are covered as part of standard home insurance coverage, insurance premiums in fire-prone areas have also become more expensive, according to Michael Barry, director of communications at the Insurance Information Institute. .
“The home insurer is looking to price the policy to reflect the risk,” he said.
For example, premiums rose nearly 10% in California from May 2021 to May 2022, according to Policygenius, with increases in costly wildfires being partly to blame.
Bill Parrott, CFP based in Austin, Texas, president and CEO of Parrott Wealth Management, also saw an increase in premiums in high-risk regions.
“If you’re moving into an area that’s prone to wildfires or flooding, that cost increases dramatically because the carrier passes it on to the consumer,” he said. “It’s a big expense for a lot of people.”
Nationally, at least 10 million properties may be at “major” and “extreme” wildfire risk, according to the First Street Foundation.
How to reduce premiums in high-risk areas
No matter where you live, it’s essential to do your homework before buying a property, suggests Barry of the Insurance Information Institute.
Before bidding, you can use free tools like ClimateCheck or Risk Factor to measure the long-term climate risk for a specific property.
Current homeowners can apply to their insurer for discounts to take steps to mitigate potential damage from weather events, such as protecting your home from storms, PolicyGenius’ Howard said.
You can also save money by shopping around and bundling home and auto policies. Home insurance is no longer a “set it and forget it” thing, he said.
And if you have enough emergency savings, you can consider lowering your premiums by increasing your deductible, Howard said.