The Climate Crisis, Natural Disasters, the Insurance Industry
With climate change, natural disasters have become more frequent and costlier for everyone, including insurance companies who have faced unprecedented claims over the last couple of decades. Some are struggling to survive, or are no longer insuring properties in certain areas, especially those in coastal states, including the New Jersey shore.
In addition, more people are moving into areas with higher risk of storms, wildfires, floods, and other natural disasters. With more people in an area, there’s more potential for problems, especially accidental wildfires.
While the updated FEMA flood-risk rating system has added millions of new properties to designated flood zones, the construction industry continues to build in these areas. As standard homeowner policies do not cover flood damage, property owners who live in these zones must purchase flood insurance from either FEMA or a private company, adding to their overall annual insurance costs.
Because they have been paying out more in claims, and because of some litigation-friendly states, private insurance companies have been incurring more debt. When they can’t pay their bills, they rely on their own reinsurance (which is essentially insurance for insurance companies), but reinsurance rates go up for them as well in the wake of more natural disasters.
The bottom line is that this all trickles down to the average property owner, making it more difficult to get insurance, and when it is possible to get policies, premiums are skyrocketing.
In addition to increasing rates, companies are raising deductibles or requiring higher deductibles when natural disasters are more likely in that area.
If property owners cannot acquire insurance from a private company, it’s possible to purchase limited temporary coverage through the Fair Access to Insurance Requirements (FAIR) plans, offered in many states. New Jersey residents should contact the State’s Insurance Underwriting Association or call (973) 622-3838 for information.
Economists warn that as natural disasters from the climate crisis jeopardize the stability of the insurance industry, there could be a lasting impact on the real estate market. When properties become uninsurable, mortgage companies and other lending providers could also refuse loans.
What’s Being Done and What You Can Do
Some companies are helping their insureds reduce their disaster risks by providing risk assessments, preconstruction advice, and incentives to rebuild with more resilience or in a less vulnerable location after a total loss. Some are also looking at the big picture and seeking climate-friendly and sustainable investments that can help lessen the effect of climate change.
If plan to buy a property, you may want to think twice about purchasing in a climate-risk area. These websites can be used to research the risk:
- Risks for storms, heat, fire, drought, and flood: Climate Check
- FEMA overall risk: National Risk Index Map
- Address-specific flood and fire risk for a specific address: Realtor.com
- Address-specific flood, storm, drought, heat, and fire risk: Redfin.com
- Risk projections for floods, fire, and heat: RiskFactor.com
Your insurance agents can also help you assess the risk of a potential property. Call, text, or email us to discuss your plans before buying.
By Colleen Woods-Esposito
