Insurers, Homeowners, Feel Climate Bite

June 29, 2020

A whole lot of homeowners across the country don’t realize that they are already at elevated risk from climate enhanced flooding and storms.
Those of us not at risk from flooding (see below) are still going to be threatened by a mortgage default crisis that could award 2008.

Two indicators here.

Washington Post:

Now, an exhaustive report out Monday shows that nationally, there are at least 6 million households that are unaware they’re living in homes that have a 1 percent chance of flooding in each year — putting them within a “100-year” flood zone. This is nearly 70 percent more homes at substantial risk of flooding than are within the Federal Emergency Management Agency’s Special Flood Hazard Areas, a designation that determines eligibility for the National Flood Insurance Program.

This count is set to grow substantially in coming decades due to the effects of climate change, including sea level rise, which will make hurricane storm surges more damaging, as well as precipitation extremes.

A warming climate is poised to wreak havoc on the housing market, particularly if risk is not properly priced. Homeowners could be stuck owning properties that are literally and financially underwater, and insurers and lenders could face a financial reckoning of their own.

The report, from the nonprofit flood research and communications group First Street Foundation, is aimed at leveling the playing field between buyers and sellers, and democratizing specialized flood risk analyses that insurance companies and consulting firms are producing but charge hefty sums to access.

Now, a prospective buyer can see a property’s flood risk score, which First Street calls the “Flood Factor,” along with a map showing flood information, for 142 million properties in the Lower 48 states.

First Street is providing property-level mapping free on its website. Using peer-reviewed models and an approach that looks at both the changing risks of flooding and probable depths of each flood, the First Street analysis assigns each property a “Flood Factor,” which is a score on a 10-point scale, to allow prospective buyers to better understand the flood probabilities associated with a particular property.

I did my house.
Low flood risk for next 30 years.

Miami Herald:

Home insurance is getting a whole lot more expensive, a wallet punch for residents of a state that already has the highest property insurance rates in the nation, not to mention a staggering unemployment problem from a surging pandemic. Major insurance companies are raising windstorm premiums in Florida as much as 33 percent and dropping tens of thousands of customers, signaling an end to the nearly decade-long lull in prices. At the same time, some companies also are canceling thousands of home policies to reduce risks of corporate losses. 

The reason for the spike? Reinsurance, the insurance designed to buffer insurers from big losses. It keeps the companies afloat and ensures there’s enough cash around to pay claims if a devastating storm strikes. As a rule of thumb, industry experts say, about half of every premium dollar an insurance company collects goes toward reinsurance. 

Along with price hikes, Reshefsky said he’s seen some insurers drop a big number of South Florida clients in areas considered at high risk of hurricane damage. He estimates he’s finding new coverage for about half his high-end residential clients this year. “They start closing ZIP codes. It’s become cost-prohibitive for them to do business, with the cost of the claims and the reinsurance,” he said. “What we keep getting faced with is there’s fewer and fewer options.” 

The scarcity means that the remaining firms that will write the kind of policy that covers an expensive home can charge more for it. The other option is the state-funded insurer, Citizens. Late last year, major insurer Florida Specialty Insurance went belly up, forcing its 90,000 clients to find a new company, Insurance Journal reported. Citizens picked up hundreds of those policies, as well as tens of thousands more as private firms slim down their policy count to meet the rising price of reinsurance. 

This year, reinsurance prices rose by an estimated 26 percent, insurance news site Artemis reported. The last time Florida insurers had to deal with reinsurance prices this high was 2005, after back-to-back hurricanes sent premiums skyrocketing. 

Reinsurance companies say the drawn-out process of paying claims after storms drives up prices. Hurricane Irma’s initial estimated damage when it hit in 2017 was around $9 billion. At that point, experts predicted premiums were unlikely to rise. Now that’s ballooned to $17 billion three years later, according to the Florida Office of Insurance Regulation

The other big factor behind higher premiums is lawsuits, which Florida tried to curb two years ago with some reforms. Insurance companies blame legal bills for driving up premiums across the state and have called for even stricter reforms.

Jay Neal, executive chairman of the Fort Lauderdale-based Federal Association for Insurance Reform, called the premium hikes “a rude awakening.” 

He worries that soaring prices may drive people with paid-off mortgages (and therefore no legal requirement to insure their homes) to drop coverage altogether.

“There’s a popular conception that FEMA will step in and make you whole. Not if you don’t have a homeowner policy. Not if you don’t have a flood policy,” he said. “It’s not going to happen.” 

Some homeowners are already getting new, higher bills. But Neal expects the real shock to be felt next year, when rate increases start to show up in jacked-up monthly escrow charges in home mortgages, which typically cover annual insurance costs. He said the Florida Legislature had the opportunity this year to “pull some levers” to make insurance cheaper but didn’t. 

“They missed their window. We’ve tried to warn them,” he said.

6 Responses to “Insurers, Homeowners, Feel Climate Bite”

  1. rhymeswithgoalie Says:

    He said the Florida Legislature had the opportunity this year to “pull some levers” to make insurance cheaper but didn’t.

    “They missed their window. We’ve tried to warn them,” he said.

    I would much rather have the flooding cost built into the market, and have explicit programs to help people emigrate.

    No mollycoddling of realtors, either.

  2. Sir Charles Says:

    Democrats to unveil bold new climate plan to phase out emissions by 2050

    Report to outline aim to reduce emissions to 88% of 2010 levels
    Huge sums for public transport and proposals for green vehicles

  3. Sir Charles Says:

    Flooding Risk for U.S. Homes: Millions More Are Vulnerable Than Previously Estimated

  4. jimbills Says:

    Here’s the latest turd from Michael Shellenberger:

    ‘On behalf of environmentalists everywhere, I would like to formally apologize for the climate scare we created over the last 30 years. Climate change is happening. It’s just not the end of the world. It’s not even our most serious environmental problem.’

    The article is pitch for his latest book called ‘Apocalypse Never’ and has a ton of supportive far right comments below it.

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