Love, Money + Real Estate #35
What if you can't insure what you love best?
Greetings, Friends. Hope you had a great Fourth of July break.
My husband and I spent a long weekend in New York City, walking through Central Park, visiting with our son, Michael, and some friends and family. The city was hot, muggy and relatively empty. In short: a pleasure. I ate ice cream and pizza slices with abandon.
The Impact of Climate Change on Insurance and Home Affordability
Hurricane Beryl left about 3 million people without power, and killed eight people. The storm moved through the Midwest last night and some parts of Illinois and Indiana were expected to get 2 to 4 inches of rain, or more. The financial fallout will take time to tally. But it’s clear why homeowners insurance and auto insurance policy premiums are on the rise in states like Texas, Florida, Louisiana and other places where losses from natural disasters are rising dramatically.
Last year, there were 28 natural disasters in the U.S. which each resulted in over $1 billion in direct costs, according to the NOAA’s National Centers for Environmental Information.
From January through mid-May, 2024, there have already been 11 separate U.S. billion-dollar weather and climate disaster events. These events include: nine severe storm events (tornado outbreaks, high wind, hailstorms) and two winter storm/cold wave events. The total cost of these 11 events exceeds $25.1 billion. Since 1980, there have been 387 natural disaster events, with the total cost exceeding $2.740 trillion dollars. Almost half of that cost has come from natural disasters since 2017.
Rising insurance costs directly impact affordability, as Emma Waters notes in her latest post for the Bipartisan Policy Center. The worse these storms get, the faster insurance premiums rise. But, it’s about more than just how much rain falls or wind blows:
Rising home prices and inflation impact the cost to rebuild destroyed homes and businesses.
There’s more fraud, and changes in societal expectation and legal practices that make litigation more common and costly.
Reinsurance costs are on the rise.
The biggest problem for home buyers is that rising insurance costs can makes homes even less affordable than they already are. Your mortgage company will require you to have homeowners insurance when you close, and you’ll pay into your insurance and tax escrow monthly — unless you don’t. Once your home is paid off, you can forego insurance, or self-insurance as it’s widely known. Except few people have the financial resources to be able to pay to rebuild their home from the ground up.
Insurance is going to be a huge challenge for homeowners going forward, especially in states like California, Florida and Texas. Auto insurance is getting far more expensive as well, and while that does reflect the fact that the average car now costs nearly $45,000, it also reflects greater losses in states where cars wash away in storms. If major insurance companies won’t provide options for homeowners and vehicle owners, then the choice will be expensive (and limited) state-provided coverage or going without.
Increasingly, homeowners are rolling the dice. Currently 12% of homeowners forego buying a homeowners insurance policy. That’s up from 5% in 2019, according to a study by the Insurance Information Institute. Rising premiums are starting to price homeowners out of certain markets. According to S&P Global Market Intelligence data firm, last year the average home insurance premium increased 11% nationally. But premiums went up far faster in some places than others.
Can you guess which?
In May, Insurify published a list of states where homeowners insurance costs are surging the most.
Here are the most expensive states for homeowners insurance:
If the floods, tornados, hurricanes and earthquakes continue, these numbers are only going to get higher. And, it looks as though they are.
Hurricane Central, How May We Help You?
Colorado State University upgraded it’s weather forecast for the summer this week. It added two named storms and one additional hurricane to its forecast, in what is already expected to be the busiest hurricane season in history. CSU's tropical meteorology project team is forecasting 25 storms, 12 of which will become hurricanes and six of which will reach Category 3 status or stronger, in their latest outlook for 2024 released Tuesday morning.
All of these numbers are well beyond the average from 1991 to 2020. September 10th is the peak of the hurricane season, so we’re still two months out. We don’t know how bad it’s going to get.
Already, Beryl has caused damage far beyond Texas.
Thanks for reading. Type to you again, soon.
Ilyce
So appreciative for sending this
Insurance Observation. Yes. You
Guessed it. My wife and I are full-
Time Floridians! Car insurance is
Nuts.🥜 Home insurance…a real challenge. It’s serious! Help! Pls Jeff Becker
Just received this from another reader:
"I think this problem is really and made crazier by the government-backed insurance programs that subsidize flood and wind coverage. Yes insurance is expensive but I would argue should be more so but the government effectively subsidizes wealthy people building homes within a mile of the water. I joke what is one of few issues that Elizabeth Warren and Marco Rubio agree upon: this effective subsidy because they both have home state donors / supporters who want it! I will get off my soap box."