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Climate change makes some homes too expensive to insure

Firefighters march to a burning house during the Kincade fire in Healdsburg, California, on Oct. 27, 2019.

Josh Edelson | Afp | Getty Images

As climate change threatens the US with more natural disasters, it’s getting more expensive for Americans to insure their homes⁠—and experts say it’s only getting worse.

“These things are more common and cause more damage,” said Jeremy Porter, chief research officer at First Street Foundation, a nonprofit organization focused on defining climate risks in the US.

Indeed, in 2021, according to the National Oceanic and Atmospheric Administration, there were 20 separate multi-billion dollar natural disasters in the U.S. — including a freezer, wildfires, floods, tornado outbreaks, and other severe weather — costing a total of $145 billion.

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The uptick in costly climate events, combined with rising costs to rebuild, labor shortages and “demand surges” after natural disasters have led to higher insurance premiums for homeowners, experts say.

“We’re seeing dramatic increases,” said Pat Howard, editor in chief and recognized home insurance expert at Policygenius.

About 90% of U.S. homeowners saw premiums rise from May 2021 to May 2022, costing an average of $134 more per year, according to a Policygenius report.

The average increase nationwide is 12.1%, compared to a year ago, but peaks were greater in disaster-prone states like Arkansas, Washington and Colorado, the report finds.

Some Homeowners Have Hidden Flood Risks

Water-damaged items lie outside a home in Squabble Creek, Kentucky, on July 31, 2022, after historic flooding in eastern Kentucky.

Seth Herald | Afp | Getty Images

Brad Wright, a certified financial planner and managing partner of Launch Financial Planning in Andover, Massachusetts, said erosion and rising sea levels are a growing concern for clients interested in coastal properties.

For example, when someone is considering buying a home along the beaches of Southern Maine, there are always questions about flood risks and the cost of insuring the property. Depending on the answers, they can choose a different house.

Still, owners can unknowingly buy or own in flood-prone areas. While the Federal Emergency Management Agency identified 8 million properties at risk of 1 in 100 years of flooding, the First Street Foundation found nearly double the number in a 2020 report.

These single-family homes have always been around, and they may not have a mortgage, so flood insurance may not be required.

Brad Wright

Managing partner of Launch Financial Planning

Standard homeowners insurance doesn’t cover floods, 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 costs can be significantly higher in high-risk areas.

Last October, FEMA revamped its program to more accurately assess flood risk, pushing insurance premiums for some coastal properties to $4,000 or $5,000 a year, up from just $700 or $800, First Street Foundation’s Porter said.

These walks can be prohibitive for lower-income families or retirees, especially those who may live in property inherited from family, Wright said.

“These family homes have always been there and they may not have a mortgage, so flood insurance may not be required,” 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 homeowners insurance, policy premiums in fire-prone areas have also become more expensive, according to Michael Barry, chief of communications at the Insurance Information Institute.

“The home insurer tries to match the price of the policy to the risk,” he said.

For example, California premiums rose nearly 10% from May 2021 to May 2022, according to Policygenius, with the increase in expensive wildfires partly to blame.

If you move to an area prone to wildfires or floods, those costs increase dramatically because the carrier passes it on to the consumer.

Bill Parrott

President and CEO of Parrott Wealth Management

Bill Parrott, an Austin, Texas-based CFP, president and CEO of Parrott Wealth Management, also saw rising premiums in risky regions.

“If you move to an area prone to wildfires or floods, those costs increase dramatically because the carrier passes that on to the consumer,” he said. “That’s a big expense for a lot of people.”

Across the country, at least 10 million properties may be at “major” and “extreme” wildfire risk, according to the First Street Foundation.

Lower premiums in risk areas?

No matter where you live, it’s critical to do your homework before buying a home, suggests Barry of the Insurance Information Institute.

Before bidding, you can use free tools like ClimateCheck or Risk Factor to measure long-term climate risk for a specific property.

Current homeowners can ask their insurance company about discounts for taking measures to mitigate potential damage from climate events, such as stormproofing your home, said Howard of Policygenius.

You can also save money by shopping around and bundling home and car policies. Homeowner insurance is no longer a “set and forget” kind of thing, he said.

And if you have enough emergency savings, consider lowering your premiums by increasing your deductible, Howard said.

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