Homeowners insurance sector slammed by climate impacts
Homeowners insurance sector slammed by climate impacts | Insurance Business America
Catastrophe & Flood
Homeowners insurance sector slammed by climate impacts
Some areas “marching toward an uninsurable future”
Catastrophe & Flood
By
Ryan Smith
Insurers’ profit margins are being rocked by climate change, with losses extending beyond disaster-prone coastal states like California and Florida and into the interior of the country.
Homeowners insurance was unprofitable in 18 states last year, according to a study by The New York Times. That’s up from eight states in 2013.
Most of the unprofitable states were in interior regions of the country. Those in the Midwest faced severe storms and hail, while many western states dealt with wildfires, the Times reported. Insurers have tried to mitigate the impact on profits by restricting coverage, dropping customers and even withdrawing from some states entirely.
Insurers have also hiked rates considerably. Home insurance rates spiked by nearly 20% between 2021 and 2023, and online marketplace Insurify predicts a further 6% rise this year.
Carolyn Kousky, associate vice president for economics and policy at the Environmental Defense Fund, said that the insurance sector’s climate-related woes would have a knock-on effect throughout the rest of the economy.
“Insurance is where many people are feeling the economic impacts of climate change first,” she told the Times. “That is going to spill over into housing markets, mortgage markets, and local economies.”
A long-term issue
Home insurance’s dwindling profitability isn’t a recent issue. Over the last decade, insurers nationally have paid out more in claims than they have received in premiums, according to a Moody’s report.
As severe storms and other climate-related disasters become more frequent, insurers are spending more to repair damaged homes, the Times reported. Growing losses will likely push insurers to abandon even more markets, according to former California insurance commissioner Dave Jones.
“I believe we’re marching toward an uninsurable future” in many places, Jones told the Times.
Climate change challenges insurance business model
Until recent years, insurers’ ability to pay claims was only threatened by catastrophic damage from earthquakes and hurricanes, the Times reported.
But now, previously minor threats like hail, wildfires and windstorms have become more frequent and severe. The growing danger has also threatened insurers’ bottom lines, and the industry is responding, in large part, by retreating.
In Iowa, for instance, a number of insurers have stopped writing homeowners coverage and dropped thousands of customers. Insurance agents told the Times that it’s getting more difficult to find carriers who will write new business in the state.
The same issue has cropped up across the Midwest and Southeast, as well as parts of the West, the Times reported. Insurers have also hiked rates by 50% or more in some areas.
Economic impacts
The collapse of a viable homeowners insurance market will affect more than just people trying to get coverage, the Times reported. Banks will not issue a mortgage without insurance, which could lead to fewer prospective homebuyers. That, in turn, could drive home values down, reducing property tax revenue and hampering local governments’ ability to provide services for their citizens, the Times reported.
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