NEW YORK (AP) – More Americans are finding it difficult to insure their homes, and the problem is expected to get worse as insurance companies and lawmakers underestimate the effects of climate change. says a new report.
A First Street Foundation report released Wednesday said premiums are likely to rise the most in states prone to wildfires, storms and flooding, including California, Florida and Louisiana. But the fire that destroyed the community of Lahaina, Hawaii on Aug. 8, and the historic flooding in Vermont and Maine in July could drive up insurance costs for homeowners in other states. This is an example of an event.
“If you’re not worried, you’re not paying attention,” said the California senator whose district includes wine country counties devastated by the 2020 LNU Complex fire.・Mr. Dodd said.
Incorporating climate models into real estate financial risks, First Street found in its report that approximately 39 million properties, representing about a quarter of all homes in the country, are subject to climate risks in order to insure those properties. We estimate that the price has been set at a relatively low price.
“While the impact may be very small in some regions, other regions will see significant premium increases over the next few years,” said Jeremy Porter, director of climate impact at First Street and co-author of the report. “There is a possibility that prices will rise.”
First Street, a New York-based nonprofit organization, has been actively researching the economic impacts of climate change for years. Their research is used by Fannie Mae, Bank of America, the Treasury Department and others to understand potential risks to real estate.
There are some signs that climate change is hitting the insurance industry hard. The U.S. homeowners insurance industry has suffered underwriting losses for the third year in a row, according to credit rating agency AM Best. Total losses for the first half of 2023 were $24.5 billion, roughly equivalent to losses for all of 2022.
“(Climate change) is an issue that’s already here,” said Todd Bebbington, managing director of insurance brokerage VIU by HUB. In his 30 years in the insurance business, he said, “I’ve never seen the market change so quickly or so drastically.”
Rising insurance premiums are a serious concern for the small Northern California town of Paradise, which was nearly wiped out by deadly wildfires in 2018 that killed 85 people.
Jen Goodlin moved back to her hometown from Colorado with her family in 2020, determined to help the town rebuild. They began construction on the land they purchased and moved into their new home in October 2022.
In July, she was shocked to receive a notice that her family’s homeowners insurance premium would go from $2,500 to $11,245.
“Our insurance agent said, ‘Thank God I didn’t drop you.’ And I said, ‘You did, you just dropped me.’ ” she said.
Goodlin, a former dental hygienist and current executive director of the nonprofit Rebuild Paradise Foundation, believes that towns that are built to the latest fire-safe building codes have a population of hundreds, if not thousands, of people. One hundred people said they were affected by these price increases. fuel for burning. She knows a homeowner whose new home insurance is currently $21,000.
A record number of Americans are now getting insurance through state-affiliated “insurers of last resort,” such as California’s FAIR Plan and Louisiana and Florida’s Citizens Casualty Insurance Company. These programs were designed to insure properties that private insurance companies would deny coverage to or for which private insurance would be too expensive.
Goodlin may soon be one of those homeowners. She said she is in the process of transitioning to the FAIR plan.
The number of homeowners covered by California’s FAIR Plan in 2021 was 268,321, nearly double the number five years ago. Experts say this number has almost certainly increased over the past two years. In Florida, Citizens Property Insurance Corp. currently insures 1.4 million homeowners, nearly three times as many in five years.
In some cases, policymakers are tying the hands of insurance companies, leading to underestimation of risks. For example, California insurance companies can legally raise homeowners’ insurance premiums by 7% each year without a public hearing, a process most insurers prefer to avoid. These policies, along with the increased likelihood of catastrophic events, have prompted insurance companies such as State Farm and Allstate to either exit the California market or suspend new insurance writing. It has become.
As a result, California’s FAIR plan, created 50 years ago as a stopgap measure for people affected by the riots and wildfires of the 1960s, is now is the only option available.
“We have to find a way to get insurance companies back into the market and remove people from FAIR plans and reduce the risks there,” Dodd said.
Dodd was one of the lead lawmakers trying to negotiate a bill to address the issue in the final weeks of the state Legislature. However, all sides were unable to reach an agreement.
Porter said there could be more insurance market failures in the future as more insurers refuse to write policies in certain areas or investigate properties on a property-by-property basis. Comparisons are common with the National Flood Insurance Program, which currently has a $22.5 billion debt.
Even the backstop program faces huge losses. Louisiana’s last insurance company, Citizens, has raised its 2023 premiums by 63.1% statewide to prepare for higher costs.
This summer, reinsurers such as Swiss Re and Munich Re increased their real estate catastrophe reinsurance premiums in the U.S. by an average of 20 to 50 percent. Reinsurance brokerage firm Guy Carpenter & Company announced it was the highest increase in reinsurance premiums since the year after Hurricane Katrina devastated New Orleans and the Gulf Coast.
“It’s a global problem. The price of risk is rising again in almost every region,” Lara Mowry, global head of distribution at Guy Carpenter, said in an interview.
Reinsurance companies step in to cover catastrophe losses, so regular insurance companies don’t take on all the risk. In one example of a typical reinsurance contract, a $20 million contract requires the insurance company to cover her first $10 million claim and the reinsurance company to pick up her remaining $10 million.
Mowry added that many reinsurers now have resources dedicated to studying the effects of climate change on catastrophe pricing.
There are other factors affecting the insurance industry as well. Inflation is driving up the cost of home repairs, and home prices are hovering near record levels. Labor shortages could mean it takes longer to repair damaged homes, and insurance companies may have to pay for temporary housing for policyholders for longer.
In short, industries with business models that calculate risk based on what has happened in the past are increasingly unable to do so.
“When an unprecedented event occurs, we can no longer rely on 100 years of wildfire data to assess risk,” Mowry said.
The intensity of wildfires, floods, and storms can vary from year to year, but the trend lines in these models show more wildfire activity as well as more intense storms, all of which can result in more catastrophic damages that the insurance company will have to compensate. cover.
First Street estimates that approximately 34,000 homes will be destroyed by wildfires each year by 2050, considering climate models and estimated area burned. That’s about the same amount the city of Ashland, North Carolina, loses each year.
With interest rates likely to rise significantly in the future, potential home buyers may need to consider the cost of insuring the property they are considering even more before committing to a mortgage rate.
“Homeowners insurance used to be an afterthought when considering a property purchase. Over the next few years, you need to really investigate what risks might be present on the property. Yes,” Bebbington said.
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Adam Beam contributed to this report from Sacramento, California, and Janie Herr contributed from San Francisco.
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