Weather-related damage is driving up property insurance costs

Our homeowner’s insurance carrier a few weeks ago sent me our annual premium notice for the 12-month period beginning April 10, 2024. The valuations of our house, garage, and personal property had climbed almost 7% higher than they were for the previous 12-month period. That wasn’t a surprise. In fact, I was somewhat gratified by what the carrier says is the replacement cost of our property now.

But the premium! Ay, there’s the rub. It was more than 50% higher than the previous 12-month renewal contract.

How could that be? I had no idea. So I took the new premium notice and the one from a year earlier to our local homeowners’ insurance agent. We decided to sharply increase the policy’s deductible to hold down the premium increase. But what I learned from our agent opened my eyes.

I knew how inflation had impacted construction costs, whether actual or as protection against potential loss. That was part of the premium increase, of course. That made sense.

But the part that shocked me was the fact that high levels of property damage statewide and nationally over the past three years, caused by storms, wildfires and floods, were contributing heavily to the jumps in property insurance premiums. It isn’t just Kathy’s and my home; it’s the homes all across both Iowa and the United States. You may have experienced a similar eye-opener recently as well.
  The bottom line: climate change, and its resulting weather-related damage, are driving up property insurance costs at a rate not hitherto experienced across America. Whether we’ve had property losses or not, we’re paying for the sharp jump in the incidence of weather-related losses everywhere in this nation.

Traditionally, insurance companies look to past events to determine future risks and how those risks should affect premium costs. But climate change in recent years makes those rear-view-mirror calculations nearly irrelevant. Long heat waves cause kinks in metal. Sea-level rise floods coastal homes. High winds destroy rooftops. Long-term drought buckles asphalt in driveways. Wildfires wipe out whole communities.

The number of billion-dollar weather-related catastrophes in America since 1980 has risen sharply. Careful calculations by insurance actuarial staffs, and by the U.S. Office of Management and Budget, predict that climate change could reduce the U.S. gross domestic product (GDP) nearly seven percent by 2050, and 10 percent by 2100.

Worldwide the situation is even more dire. If nations across the planet contain the world’s heat rise to 4.7 degrees Fahrenheit — which is about what current policies would result in — GDP across the world could drop by 14%. If nations take additional steps to limit heating to a rise of just 3.6 degrees, the drop in GDP could be held to 11%.

California’s wildfires in 2017 and 2018 wiped out 25 years’ worth of insurance company profits in that state. In just the three years of 2016, 2017 and 2018, insured losses from wildfires globally equaled more than 70% of those same kinds of losses in the almost four decades from 1980 to 2018.

Given those conditions, it’s not surprising that insurance companies are raising their customers’ premiums. In the 1 1/2 years following January 2022, 31 states experienced double-digit rate increases, and six states had increases from 20 to 30%. Rates have continued to climb since then.

Iowa’s situation is worrisome enough. In coastal states like California, Florida and Louisiana, it’s even worse. Some major companies have reduced, or even denied, coverage to homes along the East Coast because of potential flooding, and to those in the West because of wildfires. 

As a result, an increasing number of homeowners are having to go without insurance. So unless government or philanthropists step in, those homeowners bear the entire loss in disasters. States and local communities could ease some of the pressure by adopting building and land-use practices that reduce risk to homes, but the number that take those steps is depressingly small.

An example: North Carolina has a statewide buyout program that uses government funds to buy out homes at high risk from flooding, but from 1996 to 2017 the state saw 10 new homes constructed in the flood plain for every property removed.

As of yet, no state has developed a building and land-use plan to combat the effects of climate change, nor has the federal government. In the United States the standard response has been to kick the climate change can down the road. Perhaps the risings costs — or unavailability — of insurance premiums will finally accomplish what jawboning so far has failed to do: force people, businesses, political parties, and governments to get serious about climate change. ♦