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Heat Waves and Cold Freezes: How Climate Change Will Impact Home Insurance

In 2022, there were 18 weather and climate disasters in the United States, with each disaster resulting in losses exceeding $1 billion, attributed to storms, tropical cyclones, hail, tornadoes, drought, floods, winter storms, and wildfires. This is the eighth consecutive year the U.S. has experienced 10 or more separate billion-dollar disasters.

These increased weather events have caused insurers to reevaluate the availability and cost of homeowners insurance and the housing market to decrease in areas prone to them.

In recent years, extreme weather events have become more frequent due to climate change, affecting homeowners through weather events such as wind, fire, heat, and drought.

Heat Waves 

Heat waves are prolonged periods of abnormally high temperatures that can have severe health and economic impacts. Climate change may increase heat waves, as rising global temperatures lead to more extreme weather events.

One recent example of the impact of heat waves occurred in the Pacific Northwest region of the United States in 2021, when an unprecedented heat wave led to record-breaking temperatures and widespread impacts on public health, infrastructure, and the economy. In Oregon, for example, the heat wave led to hundreds of deaths and impacts on agriculture, energy infrastructure, and transportation.

The economic impacts of heat waves can be significant, as businesses and communities face disruptions to operations and increased costs associated with health care, energy use, and other factors.

How It Impacts Home Insurance Rates

Homeowners in areas prone to heat waves may face higher insurance rates due to the increased risk of heat-related damages to homes from drought or wildfires caused by heat waves. Not only will the rates for home insurance rise, but some insurers may decline altogether.

Cold Freezes

A cold freeze refers to an extended period of unusually cold weather, or freezing, that can significantly impact communities and infrastructure. Climate change will cause cold freezes to increase and be more severe. 

One recent example of the impact of a cold snap occurred in February 2021 in Texas, when a polar vortex led to record-breaking cold temperatures and widespread impacts on energy infrastructure, transportation, and public health. These temperatures caused a lot of frozen pipes to burst, causing millions of damages throughout the state. 

How It Impacts Home Insurance Rates

Cold freezes can increase the risk of home damage from frozen pipes that burst, heating equipment malfunctions, and other cold weather-related hazards. Homeowners in areas prone to cold snaps may face higher insurance rates due to the increased risk of cold weather-related damages to homes and other properties. 

Insurance Companies Pulling Out of Most At-risk Communities 

Homeowners insurance is an essential protection for homeowners who face various risks associated with owning a home. However, in some states, such as California, Louisiana, and Florida, many insurance companies no longer offer certain coverages or policies due to the increased risk caused by natural disasters

California and Wildfires

California is no stranger to devastating wildfires, and the risk of wildfire continues to increase due to climate change. Insurance companies have responded by canceling or not renewing policies in areas prone to wildfires. Insurance companies have sometimes raised premiums or reduced coverage to offset the increased risk. The California Department of Insurance reported that in 2019, over 235,000 homeowners received non-renewal notices from their insurance companies due in part to wildfire risk.

Louisiana and Florida Hurricanes and Flooding

Hurricanes and flooding are significant concerns for homeowners and insurers in Louisiana and Florida. After the destruction caused by Hurricane Katrina in 2005 cost insurers over $41 billion, insurance companies in Louisiana have become increasingly cautious about offering coverage for hurricane-related damages.

Louisiana insurance premiums have increased by 80% since 2012. In Florida, where hurricanes are a regular occurrence, insurance companies have become more selective in offering coverage, with many excluding wind damage and limiting coverage for flood damage.

The Impact on Homeowners

The lack of insurance options for homeowners in these states leaves them vulnerable to the financial impact of natural disasters. With insurance, homeowners may be able to pay for repairs or rebuilding costs. Without it, they may be left homeless. Some people have even moved out of these areas that are prone to any of these weather events. If you reside in one of these areas, you could be financially devastated due to the lack of insurance availability. 

The increasing risk of natural disasters has led many insurance companies to withdraw or exclude particular coverage or policies, leaving homeowners vulnerable to significant financial losses. The impact is particularly acute in states like California, Louisiana, and Florida, where wildfires, hurricanes, and flooding are significant concerns.

Rising Premium Costs and Deductibles

Homeowners who live where these weather events like heat waves and cold freezes happen or have had their homes damaged by extreme weather events may face significant premium increases and higher deductibles from their insurance providers. 

Premium Increases

Insurance companies may raise premiums for homeowners living in areas at higher risk. For example, homeowners in California who live in wildfire-prone areas have seen premiums increase by up to 300% in recent years. 

Insurance companies may also raise deductibles for homeowners. A deductible is an amount you must pay out of pocket before your policy pays toward the claim. In some cases, the deductible may be a percentage of the home’s total value, which can be a significant amount for those in high-risk areas.

Impact on Homeowners

The rising premiums and increased deductibles can make it more difficult for homeowners to afford insurance coverage. For some, the cost may become so high that they cannot insure their homes against these weather events. As a homeowner, if you live in these areas, you could be financially impacted if your home is damaged.

Government Push to Hold Insurers Accountable

Scientific American discusses how some home insurers are withdrawing from communities that are most vulnerable to climate-related disasters, such as heat waves, cold freezes, wildfires, hurricanes, and drought. This is happening because insurance companies are experiencing increased losses due to the frequency and severity of natural disasters in these areas. As a result, many insurers are either reducing coverage, raising premiums, or withdrawing from certain regions altogether.

The impact on homeowners is significant, as they may have difficulty obtaining affordable insurance coverage or may even be left without coverage altogether. This can lead to financial devastation in a disaster, as homeowners may be forced to bear the total cost of rebuilding or repairing their homes. Additionally, homeowners who cannot obtain insurance might have trouble purchasing or selling a home.

Overall, the withdrawal of home insurers from vulnerable communities due to climate change-related risks highlights the urgent need for the government to address the issue of climate change and its impact on homeowners and communities.