The piece takes a look at the extraordinarily steep cost of homeowners insurance in America, which has been increasingly pushed by the swelling costs of climate change damage. It explores the main drivers of the trend, from increasingly frequent and severe weather events to accelerating construction costs to how insurance companies are grappling with an uncertain future caused by a changing climate.
The Climate Change Conundrum
Insurers warn climate change is behind nation’s insurance disaster Over the last century, global average temperature increased due to human activities such as emission of greenhouse gases and changes in land use patterns, leading to more frequent and severe climate-related extreme weather events.
With more frequent hurricanes, wildfires and other disasters leading to greater numbers of property damage claims from policyholders, payouts have surged for the insurance industry. The insurance industry has had to reassess their risk models and the numbers are eye-watering. In Houston, what were historically recorded as 100-year disasters — so disastrous that they should happen once in a century — are assumed to be 1-in-23-year events by the risk assessors at First Street Foundation.
That considerable uptick in the severity and regularity of natural disasters has forced insurance companies to scramble to keep up with it all by increasing premiums and decreasing coverage in order to stay solvent. The result is a rising cost to homeowners who are now paying more for insurance and receiving less protection.
The Economic Ripple Effect
The insurance industry is also that important to the general economy. Insurance is central to a myriad of transactions ranging from getting a mortgage to driving a motor vehicle or entering into business contracts. So when the cost of insurance rises, the effects are felt through the economy.
The cost will then fall on homeowners and their businesses as insurance companies increase premiums and decrease coverage. That raises the cost of housing, making it harder for people to afford and keep their homes and limiting residential development, economic development, and private investment in areas.
Compounding these crazily high numbers is the sad fact that insurance companies are not only just speaking politically with these hikes. They are relying upon data, advanced models and the requirement to balance competition, solvency and compliance. But they are becoming increasingly alarming as the impacts of climate change get worse, year by year.
Conclusion
Higher U.S. homeowners insurance rates are a troubling sign of the difficulties that come with climate change. Growing frequency and intensity of extreme weather events is forcing insurance firms to change their home policies, including more type of risk-based pricing in Ontario. Moreover, this trend not only imposes a substantial financial inconvenience on individuals but also has an extensive potential impact to the overall economy as the shockwaves of the Insurance Crisis are resonating in different places. The solution is multifaceted, but includes mitigating the climate change impacts while also supporting the adaptation of insurers and promoting access to affordable and scaled protection to homeowners.
