“An era of complacency is ending. If you decide to buy that condo where you can hear the ocean’s waves, realize that you are likely to pay more for that privilege — one way or the other.” That’s how Benjamin Keys, a professor at the University of Pennsylvania’s Wharton School, put it in a recent New York Times op-ed. “We have reached a turning point,” he wrote. “Climate risk is driving insurer decisions like never before.”
In 2021, the structural damage from wildfires, floods, and other climate-related disasters totaled $145 billion, according to the National Oceanic and Atmospheric Administration. In recent years, insurers have been paying claims for about 20 disasters a year with damages of over $1 billion, a sixfold increase from the 1980s.
Not all insurance companies can handle that level of claims. “Ten insurers have gone belly up in Florida in just the last two years,” Keys pointed out. “And in many cases, insurers are pulling back in risky areas, leaving state-backed insurance plans holding the bag. Both private and government-backed insurers are undercapitalized for dealing with the potentially massive disasters we could be facing in coming years.”
Not surprisingly, premiums are rising even more quickly than other expenses in this country. Between 2021 and 2022, 90 percent of homeowners saw an increase in their home insurance premiums, according to a Policygenius report.
To save money, some people who are at risk of flooding do not buy flood insurance. It’s estimated, Keys wrote, that only one-third of households in flood zones have flood insurance — “with many risking financial ruin if the ‘big one’ hits.”
“Most homeowners should care about climate change and the potential impact on their families and property,” John Berkowitz told The Washington Post’s Michele Lerner. Berkowitz is the founder and CEO of OJO Labs, a real estate technology firm that owns the Movoto listing site in Austin, Texas. Lack of knowledge about climate risk makes it difficult for buyers to recognize that their home could be more costly to maintain, more expensive to insure, and more exposed to damage and possible destruction from a storm or fire, Lerner wrote.
There’s a way to estimate the environmental risks of your property: Use the Risk Factor tool created by First Street Foundation.
Of course, all of us who have insurance have a stake in this problem. As Keys explained, “To have the necessary buffer to pay out claims after catastrophic losses, insurers will need more reserves and more reinsurance, and they will pass those costs on to policyholders in the form of higher premiums. That includes policyholders who live well out of harm’s way. The year after the Marshall fire destroyed over 1,000 homes and caused over $2 billion in damage near Boulder, Colorado, average premiums rose over 17 percent statewide.”
The smartest way to reduce such risks is to reduce carbon dioxide and methane emissions–and the quickest way to do that is to put an honest price on those emissions. Please urge your senators and representative to support a carbon tax.