Sep 27, 2023 - Energy & Environment

Extreme weather could cause insurance rates across the country to spike

Data: First Street Foundation; Map: Kavya Beheraj/Axios

Millions of homeowners nationwide are facing higher insurance rates due to the risk of wildfires, high winds and flooding, a new analysis finds.

  • About 12 million properties may see premium hikes because of the risk of flooding, nearly 24 million because of potential wind damage, and about 4.4 million because of wildfire risk, per estimates from the First Street Foundation, a climate data nonprofit.

Why it matters: Many homeowners may struggle to manage higher costs.

  • About 640,000 delinquent mortgages may see higher insurance premiums, the report finds, "increasing the likelihood of default."

Driving the news: Insurers are changing how they factor climate and extreme weather risks into the premiums they charge for coverage, while some are suspending coverage altogether.

What's happening: When it comes to wildfire and wind damage, some private insurers are dropping policyholders as the risk of those threats grows, says Jeremy Porter, First Street's head of climate implications research.

  • That's leading many homeowners to opt for public "insurer of last resort" plans — but often at higher rates.

California state law, for example, prevents private insurers from raising their rates more than 7% a year, but public plans have no such cap.

  • Some Californians have gone from paying $1,500 annually for their private plan to $6,000-plus for a public plan.
  • Of note: California leaders announced a plan last week to lure insurers back to the state by more quickly deciding on rate hike requests.

Meanwhile, FEMA recently updated its flood insurance pricing model for the first time since the 1970s, leading to higher premiums that are more reflective of today's flooding risks, Porter says.

  • The intrigue: 8 million households are in FEMA flood zones, but only 4.7 million have active flood insurance policies.

Zoom in: Rising rates driven by climate and weather-related risks are particularly pronounced in states like Florida and Louisiana, where many residents are turning to insurers of last resort.

  • The number of wind damage insurance policies in force with Florida's state-sponsored provider, for instance, grew 168% between 2016-2023 to over 1.3 million, while the average premium rose about 60% from around $2,000 to $3,300, per the report.
  • During this period, seven hurricanes made landfall in the state.

Between the lines: Climate and extreme weather risks — and the associated financial costs — are starting to influence where people choose to live, Porter says, but only to a slight degree.

  • For example, Florida's population grew from 2020 to 2022, per the latest census data. But Miami — home to the country's most expensive homeowner's insurance — shrunk slightly.
  • Miami is still a popular place to live, but people are leaving areas such as South Beach for communities at higher elevations, like Little Haiti, Porter says.
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