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Hurricanes and Tropical Storms: How Climate Change Will Impact Home Insurance

News about climate change is unavoidable — if you ever watch the news or scroll social media, you’ve undoubtedly heard about how global temperatures are significantly warmer than they have been in past decades: the average temperature has increased by almost two degrees Fahrenheit across the United States. The frequency and severity of rains have increased as well. But this may feel far removed, as if it could not impact you.

However, climate change is causing extreme weather events to occur more frequently, and aside from increased droughts or unending rainfall being an everyday nuisance, these events are also impacting homeowners insurance prices and coverage availability.

Climate change has caused more extreme weather events to occur in recent years, including hurricanes and tropical storms. The difference between the two comes down to windspeed:

  • Hurricane: This is a tropical cyclone with sustained winds of 74 miles per hour or more
  • Tropical storm: This is a storm with winds between 39-73 miles per hour.

Both events can cause significant damage to coastal communities through strong winds, storm surges, and heavy rainfall.

Where Does Climate Change Come In?

Climate change is affecting hurricane and tropical storm activity in several ways:

  • Warmer ocean waters due to rising global temperatures can provide more energy for storm development and intensification.
  • Rising sea levels can increase the height of storm surges, which can cause more flooding in coastal areas.

For example, in 2020, the Atlantic hurricane season was particularly active, with a record-breaking 30 named storms. This included 13 hurricanes, 6 of which were major hurricanes. These storms caused significant damage, particularly in the U.S. and Central America Gulf Coast region.

For instance, Hurricane Laura made landfall in Louisiana in August 2020 and caused an estimated $19 billion in damages. This does not include the outages homeowners and businesses experienced.

How It Impacts Home Insurance

  • Increased risk of flood damage: Insurance rates will rise, and it may be difficult to obtain coverage as insurers consider homes in these areas much riskier.
  • Higher likelihood of wind and storm damage: More claims for wind and storm damages means higher premiums for individuals and likely for homes in that area overall.
  • Increased demand for insurance coverage: Higher demand for coverage may mean higher prices as homeowners strive to protect their properties.
  • Changes in insurance availability: Insurers may drop out altogether or limit their exposures due to significant increased risk.
  • Impact on home values: Home values will decrease if storm risks increase, not only in frequency but also in size and potential damages.

Insurance Companies Pulling Out of Most At-risk Communities 

In recent years, many insurance companies have stopped offering certain coverages or policies in states where the risk of natural disasters has increased due to climate change. This trend is driven by concerns about the rising costs of claims associated with events such as hurricanes, wildfires, and floods, as well as the potential for future losses due to the increased risk of these events.

For example, Louisiana and Florida are both highly vulnerable to hurricane and flood damage. Insurance companies have responded by reducing coverage options or increasing premiums in these areas.

In Louisiana, the state’s insurer of last resort saw a 53% increase in policies written after Hurricane Katrina in 2005 as private insurers withdrew from the market. In Florida, many insurance companies have stopped offering coverage for wind damage or have significantly increased premiums in high-risk areas.

Impact On Homeowners In Hurricane-prone States

The reduced availability of insurance coverage can significantly impact homeowners, who may be unable to find affordable coverage or may be forced to accept policies with limited coverage options.

This can leave homeowners vulnerable to significant financial losses in the event of a natural disaster, as they may be unable to rebuild or repair their homes without adequate insurance coverage. It can also have broader impacts on the housing market, as prospective homebuyers may need more time to purchase homes in high-risk areas due to concerns about the availability and affordability of insurance coverage.

In response to these challenges, some states have taken steps to address the issue by creating state-run insurance funds or offering tax incentives to insurance companies that provide coverage in high-risk areas. Homeowners can also take steps to reduce their risk of damage and to increase their insurability, such as by investing in home improvements that reduce the risk of damage from natural disasters.

Rising Premium Costs and Deductibles

As weather events become more frequent and severe, many insurance companies are raising premiums and deductibles for policies sold in areas at higher risk of weather-related damage. This can create significant financial challenges for homeowners, as they may have to pay more out of pocket for coverage or be forced to go without insurance altogether.

One reason for this increase in premiums and deductibles is that insurers pay more in claims for weather-related damage. The cost of weather disasters in the United States was $22 billion in 2020 alone.

Another reason for the increase in premiums and deductibles is that insurers are becoming more selective about the risks they are willing to cover. This leaves homeowners with limited options. For example, in coastal states, homeowners will see increases due to a higher risk of floods and hurricanes. Some insurers may increase the deductible, which may already be 4% of the home’s building limit. 

Hurricane-prone States Taking Steps to Help Homeowners

Home insurance companies are increasingly pulling out of communities at a high risk of climate change-caused weather events, meaning homeowners in those regions are left without protection against damage from natural disasters.

States are now taking significant actions to protect homeowners to keep more insurance companies from leaving hurricane-prone areas, as well as keep insurance prices down for homeowners. For example, in December 2022, lawmakers in Florida approved property tax relief for homeowners affected by Hurricane Ian as well as provisions to attract more insurers to the state which in turn should drive down insurance prices due to competition.

Maintaining home insurance is critical, and especially so in states where climate change has increased the frequency and scale of extreme weather events.