Climate change is making some homes too expensive to insure

Firefighters stop in front of a burning house during the Kincade Fire in Healdsburg, Calif., October 27, 2019.

Josh Edelson | AFP | Getty Images

As climate change threatens the United States with natural disasters, it’s becoming increasingly expensive for Americans to insure their homes⁠—and it’s only set to get worse, experts say.

“These things are happening more often and causing more damage,” said Jeremy Porter, director of research at the First Street Foundation, a nonprofit focused on defining climate risk in the United States.

Indeed, there was 20 Distinct Billion-Dollar US Natural Disasters in 2021 — including deep freezes, wildfires, floods, outbreaks of tornadoes and other severe weather — costing a total of $145 billion, according to the The National Oceanic and Atmospheric Administration.

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The increase in costly weather events, combined with increased reconstruction costsLabor shortages and “surges in demand” after natural disasters have triggered higher home insurance premiums, experts say.

“We’re seeing drastic increases,” said Pat Howard, editor and licensed home insurance adjuster at Policygenius.

According to a Policygenius Report.

The average increase is 12.1% nationwide, compared to a year ago, but surges were higher in disaster-prone states like Arkansas, Washington and Colorado, according to the report.

Some Homeowners Have Hidden Flood Risks

Water-damaged items lie outside a home in Squabble Creek, Ky., July 31, 2022, after historic flooding in eastern Kentucky.

Herald Seth | AFP | Getty Images

These family homes have been around forever, and they may not have a mortgage, so flood insurance may not be necessary.

Brad Wright

Managing Partner of Launch Financial Planning

Standard home insurance policies do not cover flooding, but protection is available via FEMA or private coverage, which may be required by mortgage lenders. While the average annual premium is $985, according to ValuePenguinexperts say the cost can be significantly higher in high-risk areas.

Last October, FEMA has revised its program to more accurately assess flood risk, which drives up insurance premiums for some coastal properties to $4,000 or $5,000 a year from just $700 or $800, said Porter of the First Street Foundation.

These hikes can be prohibitively expensive for low-income families or retirees, especially those living in inherited family property, Wright said.

“These family homes have been there forever, and they may not have mortgages, so flood insurance may not be necessary,” he said. “But they should have it anyway.”

Wildfire risk can be expensive to insure

Flames burn during the McKinney Fire in the Klamath National Forest on July 31, 2022.

david mcnew | AFP | Getty Images

If you are moving to an area prone to wildfires or flooding, this cost increases dramatically because the carrier passes it on to the consumer.

Bill Parrott

Chairman and CEO of Parrott Wealth Management

Bill Parrott, CFP based in Austin, Texas, president and CEO of Parrott Wealth Management, also saw an increase in premiums in high-risk regions.

“If you’re moving into an area that’s prone to wildfires or flooding, that cost increases dramatically because the carrier passes it on to the consumer,” he said. “It’s a big expense for a lot of people.”

At the national level, at least 10 million properties may be at ‘major’ and ‘extreme’ wildfire riskaccording First Street Foundation.

How to reduce premiums in high-risk areas

Current homeowners can apply to their insurer for discounts to take steps to mitigate potential damage from weather events, such as protecting your home from storms, PolicyGenius’ Howard said.

You can also save money by shopping around and bundling home and auto insurance policies. Home insurance is no longer a “set it and forget it” thing, he said.

And if you have enough emergency savings, you can consider lowering your premiums by increasing your deductible, Howard said.

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