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USA - As climate change threatens more homes, some properties are getting too costly to insure

As climate change threatens the U.S. with more natural disasters, it’s becoming increasingly costly for Americans to insure their homes, experts say. Homeowners insurance premiums rose by 12.1% nationwide, compared to one year ago, but surges have been higher in disaster-prone states, according to Policygenius.

As climate change threatens the U.S. with more natural disasters, it’s becoming increasingly costly for Americans to insure their homes ⁠— and it’s only expected to get worse, according to experts.

“These things are occurring more often, and they’re causing more damage,” said Jeremy Porter, chief research officer at First Street Foundation, a non-profit focused on defining U.S. climate risk.

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

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

“We’re seeing drastic increases,” said Pat Howard, managing editor and licensed home insurance expert at Policygenius.

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

The average increase is 12.1% nationwide, compared to one year ago, but surges have been higher in disaster-prone states like Arkansas, Washington and Colorado, the report found.

Some homeowners have hidden flood risks

Water-damaged items sit outside a house in Squabble Creek, Kentucky, on July 31, 2022, after historic flooding in Eastern Kentucky.
Water-damaged items sit outside a house 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 growing concerns for clients interested in coastal properties.

When someone considers buying a home along the beaches of southern Maine, for example, there are always questions about flood risks and the cost of insuring the property. Depending on the answers, they may choose another home.

Still, owners may unknowingly purchase or own in flood-prone areas. While the Federal Emergency Management Agency identified 8 million properties at risk for 1-in-100-year flooding, First Street Foundation found nearly double the amount in a 2020 report.

Standard homeowners insurance policies don’t cover flooding, but protection is available through FEMA or private coverage, which may be required by mortgage lenders. While the average yearly premium is $985, according to ValuePenguin, experts say the cost may be significantly greater in high-risk areas.

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

These hikes may be prohibitively expensive for lower-income families or retirees, especially those who may be living in a property inherited from family, Wright said.

“These family houses have been around forever, and they may not have a mortgage, so flood insurance may not be required,” he said. “But they should have it anyway.”

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