Insurers Quietly Withdrawing from Climate Risk Areas

August 21, 2019

This is happening faster than most people realize, and could become a stampede.

In areas at increased risk from wildfire and flooding, Insurers are quietly jacking up rates, or refusing to write policies.
Climate gentrification already beginning to leave behind those who can’t afford to move – and might eventually become refugees.

New York Times:

Insurers are quietly reducing their exposure to fire-prone regions across the Western United States, putting new pressure on homeowners and raising concerns that climate change could eventually make insurance unaffordable in some areas.
Officials in California, Washington, Montana and Colorado are getting more complaints from people whose insurance companies have refused to renew their coverage. The complaints follow years of record-setting wildfires in both size and cost, a trend that scientists expect to continue as global warming accelerates. 
“I think that we are not far away from a lot of weather-related events being too expensive for most people to purchase comprehensive coverage,” said Carolyn Kousky, executive director of the Wharton Risk Center at the University of Pennsylvania. “What happens then is the big question.”
On Tuesday, California’s Department of Insurance issued a report quantifying that pullback. For the ZIP codes most affected by the wildfires in 2015 and 2017, the number of homeowners dropped by their insurance companies jumped 10 percent between 2017 and 2018.

In the 10 California counties with the most homes in high-risk areas, the number of homeowners’ policies written by major insurers, whose rate increases must be approved by state regulators, fell by 5 percent between 2015 and 2018, the department said. 
Another way of measuring the growing reluctance of insurers is the increase in demand for the state’s FAIR plan, which is effectively prohibited from turning away customers but typically charges higher premiums as a result. In those same 10 highest-risk counties, the number of homeowners getting coverage through that plan increased 177 percent while staying flat statewide.
“By not being able to find insurance, you then in turn can’t sell your home. If you can’t sell your home, then it affects the local property taxes,” said Ricardo Lara, California’s insurance commissioner. “This is really creating chaos.”
The trade group representing insurers said the fires of the past two years had compelled companies to reduce their exposure. Whether that pullback is temporary or permanent depends on what the state does next, according to Rex Frazier, president of the Personal Insurance Federation of California.
Mr. Frazier said the state should allow insurers to raise rates to better reflect the full cost of wildfire risk. He also called for more aggressive forest management, such as controlled burns to remove trees, brush and other fuel for wildfires, as well as requiring homeowners to keep more space between their houses and the vegetation around them.

The alternative — continuing to build homes in dangerous areas, combined with worsening fire conditions and premiums that don’t reflect the true risk of wildfires — is “not the recipe for a healthy market,” Mr. Frazier said.
Versions of that trend are playing out across the West. In Washington State, officials have been receiving more complaints from people in wildfire-prone areas about insurance companies, according to Mike Kreidler, the state’s insurance commissioner.
“Some companies are starting to re-evaluate their position in certain geographic areas, largely driven by eastern Washington right now, or at least we think so,” Mr. Kreidler said.

Miami Herald:

The letter might have already come in the mail. “Your building is at high risk for flooding,” it declares in bold. There are ominous charts warning that if you don’t take action, your flood insurance premium could rise up to 18 percent each year. 
The bottom line: your flood insurance premium is going up again — and under a policy change the Federal Emergency Management Agency is considering, it could skyrocket even more in coming years.

Last time the National Flood Insurance Policy got this type of revamp the results were dramatic. Premiums doubled, tripled and more in flood-prone areas. In one extreme case, the premium on a $300,000 house in Monroe County went from $1,900 a year to more than $49,000. Congress hastily walked it back, but the motive behind the change (the NFIP’s sorry finances) has only gotten worse since then.

FEMA confirmed to the Miami Herald that it is looking into switching to risk-based pricing in 2020, which would end the subsidies most coastal communities enjoy on their flood insurance premiums and show the true dollar cost of living in areas repeatedly pounded by hurricanes and drenched with floods — like South Florida.
“That means insurance is about to become very expensive, and it kind of sounds the bell that these are high-risk areas,” said Wayne Pathman, a Miami-based land use attorney and chair of the city’s Sea Level Rise Committee. 
Premiums through the National Flood Insurance Policy are already rising an average of eight percent this year; the first wave of pricier policies started in April. That brings the average annual price (including surcharges) for a policy holder to $1,062.
It’s all part of a strategy to make the NFIP financially stable. The program is $20 billion in debt (and that’s after the government forgave $16 billion of that debt last year) because it pays out much more each year than it takes in.

Those that do not live on the coast or in the West shouldn’t be too sanguine about the situation. More extreme precipitation is straining infrastructure throughout the northeast and midwest, and will eventually require costly upgrades, or communities could face the gradual degradation of once middle class neighborhoods and even whole towns.


6 Responses to “Insurers Quietly Withdrawing from Climate Risk Areas”

  1. rsmurf Says:

    I was commenting to my wife last year when California was burning which big insurer will be the first to fall due to global warming claims. We will see.

  2. Reblogged this on The Most Revolutionary Act and commented:
    “Officials in California, Washington, Montana and Colorado are getting more complaints from people whose insurance companies have refused to renew their coverage. The complaints follow years of record-setting wildfires in both size and cost, a trend that scientists expect to continue as global warming accelerates. “

  3. rabiddoomsayer Says:

    There is so much that can be done to construct houses that mitigate the risk to a considerable extent. If designed and built that way construction costs are minimally more, but hugely expensive as a retrofit.

    But no we rebuild the same stick houses that burn down, blow away and flood. HOA’s are probably the worst at insisting on absolute conformity, but insurers, banks and cities are pretty bad too.

    If we don’t change, we will be flooded, burnt out and blown away again and again. A house can be fire proof, tornado proof and flood resistant. Yes some of the designs are ugly, but not all. Fully functional can be beautiful and isn’t the primary function of a house shelter.

  4. doldrom Says:

    Insurers are like pension funds, not earning anything on their assets with the low interest rates … they are facing financial headwinds in addition to changing risk profiles.

  5. […] via Insurers Quietly Withdrawing from Climate Risk Areas | Climate Denial Crock of the Week […]

  6. rhymeswithgoalie Says:

    If they stick with the increases in NFIP premiums the way they should then maybe, just maybe, we’ll see a more disciplined policy of abandonment in the future. Otherwise, we are on the most expensive track at all: Lots of —but not quite enough—is spent on hopeful mitigation and adaptation projects that don’t work nearly as long as they were expected, and people have to abandon anyway.

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