Are hurricanes, tornadoes, floods, droughts, and windstorms becoming more frequent because of global warming? And if so, what impact is global warming having on what you pay for homeowners insurance?
Consider this: A single hailstorm in Texas in 2016 caused $1.4 billion in damage—the costliest single-day weather event in Texas history. And according to the U.S. Environmental Protection Agency, storms like this are becoming more frequent. Nine of the top ten extreme one-day precipitation events have occurred since 1990.
Along with an uptick in global temperatures, scientists predict that one-day weather events will continue to become more severe, while we may also see an increase in the number and severity of large, damaging storms like hurricanes and tornadoes.
Climate change could become an ongoing and worsening problem for insurance companies. If billion-dollar storms become the norm rather than the exception, how will insurance companies respond? Are your homeowners insurance rates already going up?
Many factors, including the climate or weather patterns where you live, affect your homeowners insurance rates. For the average homeowner, climate change does not yet play a role in homeowners insurance costs. But the insurance industry is adapting, and in certain parts of the U.S., the way insurance premiums are calculated and how policies are structured may change over time.
When thinking about climate change and insurance, your concern as a homeowner should be whether your home is in the path of the next hurricane or 100-year flood. When a hurricane or severe storm hits, your insurance company will likely pay for costs related to structural damage to your home, as well as water damage to the inside of your home and your possessions. Most homeowners insurance policies will also pay for some of your living expenses if you are displaced because your home has been damaged.
Insurance companies set their rates by using historical data and trends to predict future losses. Climate change has made determining future risk more challenging; most homeowners and people in the insurance industry are concerned about it, but much remains unknown about its true impact on future property losses.
According to the Insurance Information Institute, current climate change models cannot be applied directly to insurance pricing. What’s more, the Institute asserts that regardless of public perceptions, storms have caused relatively little damage to insured property since Superstorm Sandy in 2012.
Ultimately, insurance companies must assess their risks and price coverage as they always have, and riskier properties simply cost more to insure. If you live in the South or coastal U.S., for example, your insurance rates are already affected by an increased risk for severe weather or natural disasters. And as the population continues to boom in warmer areas, more people and structures are in the path of the damaging storms, hail, hurricanes, and windstorms that have always been a part of life there.
In response, people who live in historically higher-risk locations might have to purchase homeowners insurance with higher deductibles for weather-related losses (e.g., wind or hail). Or, some insurers might offer policies that shift certain weather-related hazards out of the base policy and into an endorsement with a separate premium.
Also, some insurance companies are more frequently offering incentives to homeowners who proactively protect their homes from storm damage. In Florida, for example, some insurers offer discounts to homeowners who install hurricane straps on their roofs and take other measures to minimize the damage that a hurricane could cause.
But when all is said and done, will Texas or Florida homeowners have to purchase “global warming insurance” in the near future? Not likely.
If you live in an area with a history of extreme weather, be prepared to pay more for homeowners insurance. If climate change leads to more losses for insurance companies in the coming years, your insurance premium may eventually rise even more.
Take some time to review your homeowners insurance policy now. Carefully assess your property’s current value and take into consideration the possibility of more hail, wind, and water damage in the coming years. Most importantly, talk to your insurance agent about what is and is not covered by your policy and purchase additional coverage to fill the gaps, if necessary.
Many homeowners who previously did not have to purchase flood insurance should now take a second look. In recent years, unexpected floods have caused serious damage in areas that never before experienced flooding. In 2013, a historic flood killed 10 and caused nearly $4 billion in damage across 24 counties in Colorado. Unfortunately, most of the homeowners did not have flood insurance, and flood damage is not covered by homeowners insurance. You can purchase flood insurance from the National Flood Insurance Program (FloodSmart.gov).
Many environmentally conscious homeowners go to great lengths to have energy-efficient, sustainable “green” homes. Having a green home can help you reduce your family’s carbon footprint and save money on your utility bills. And it can also help you save money on your homeowners insurance.
Today many leading insurance companies offer special coverage and discounts for homes that are already green (typically those that are LEED-certified), as well as incentives to rebuild after a loss using sustainable materials, energy-efficient appliances, and other green building practices.
The best thing you can do to protect your home from damage and avoid rising homeowners insurance costs is to avoid purchasing a coastal property, any property that lies in a flood zone, or a home that is in an area with frequent tornadoes, hailstorms, or windstorms. If you do purchase a home in a riskier area, try to find a home that has been renovated to withstand weather extremes, or do the renovations yourself. Just be prepared for extreme costs, too.
Meanwhile, homeowners anywhere in the U.S. can take steps to minimize damage caused by extreme weather.
Do you have more questions about climate change and insurance? Is it time to review your homeowners insurance policy to be sure you are properly covered for the risks where you live? Talk to a local independent Trusted Choice® agent today. An independent agent can review your current policy and get quotes from multiple insurance companies, so you can be sure to get coverage that fits your needs and budget.