HomeOthersClimate Shocks Are Making Parts of America Uninsurable. It Just Got Worse....

Climate Shocks Are Making Parts of America Uninsurable. It Just Got Worse. – UnlistedNews

The climate crisis is turning into a financial crisis.

This month, California’s largest homeowners insurance company, State Farm, announced that it would stop selling coverage to homeowners. That’s not just in the wildfire zones, but across the state.

Insurance companies, tired of losing money, raise rates, restrict coverage, or withdraw from some areas entirely, making it more expensive for people to live in their homes.

“Risk comes at a price,” said Roy Wright, a former officer in charge of insurance at the Federal Emergency Management Agency and now director of the Insurance Institute for Home and Business Security, a research group. “We are only now seeing it.”

In parts of eastern Kentucky devastated by storms last summer, the price of flood insurance will quadruple. In Louisiana, the top insurance official says the market is in crisis and is offering millions of dollars in subsidies to try to attract insurers to the state.

And in much of Florida, homeowners are increasingly struggling to purchase storm coverage. Most of the big insurers have already withdrawn from the state, sending homeowners to smaller private companies that are struggling to stay in business, a possible glimpse into the future of California if more big insurers leave.

State Farm, which insures more California homeowners than any other company, said it stop accepting requests for most types of new insurance policies in the state due to “rapidly growing catastrophic exposure.”

The company said that while it recognized the work of California officials to reduce wildfire losses, it had to stop writing new policies “to enhance the financial strength of the company.” A State Farm spokesperson did not respond to a request for comment.

Insurance rates in California soared after the wildfires turned more devastating than anyone anticipated. A series of fires that broke out in 2017, many sparked by sparks from faulty utility equipment, have exploded in size with the effects of climate change. Some homeowners lost their insurance entirely because insurers refused to cover homes in vulnerable areas.

Michael Soller, a spokesman for the California Department of Insurance, said the agency was working to address the underlying factors that caused disruption to the insurance industry across the country and around the world, including the biggest one: climate change.

He highlighted the department’s Safer From Wildfires initiative, a fire resiliency program, noting that state legislators are also working to rein in development in areas most at risk of fire.

But Tom Corringham, a research economist at the Scripps Institution of Oceanography at the University of California, San Diego who has studied the costs of natural disasters, said allowing people to live in homes that are becoming uninsurable or prohibitively expensive to insure It was unsustainable. .

He said lawmakers should seriously consider buying properties that are most at risk or otherwise removing residents from the most dangerous communities.

“If we let the market figure it out, we will have insurers refusing to write new policies in certain areas,” said Dr. Corringham. “We’re not sure how that’s in the best interest of anyone other than the insurers.”

California’s woes resemble a slow-motion version of what Florida experienced after Hurricane Andrew devastated Miami in 1992. The losses bankrupted some insurers and caused most national carriers to pull out of the state. .

In response, Florida set up a complicated system: a marketplace based on small insurance companies, backed by Citizens Property Insurance Corporation, a state-mandated company that would provide windstorm coverage to homeowners who couldn’t find private insurance. .

For a while, it mostly worked. Then came Hurricane Irma.

The 2017 hurricane, which made landfall in the Florida Keys as a Category 4 storm before moving toward the coast, did not cause a great deal of damage. But it was the first in a series of storms, culminating in Hurricane Ian last October, that broke the pattern insurers had relied on: a bad claims year, followed by some quiet years to rebuild their reserves.

Since Irma, almost every year has been bad.

Private insurers began to have difficulty paying their claims; some closed. Those who survived had their rates significantly increased.

More people have left the private market for Citizens, which recently became the largest insurance provider in the state, according to Michael Peltier, a spokesman. But Citizens won’t cover homes with a replacement cost of more than $700,000, or $1 million, in Miami-Dade County and the Florida Keys.

That leaves homeowners with no choice but private coverage, and in parts of the state, that coverage is getting harder to find, Peltier said.

Florida, despite its challenges, has one important advantage: a steady influx of residents who, for now, are willing and able to afford the rising cost of living there. In Louisiana, the rising cost of insurance has become, for some communities, a threat to their existence.

Like Florida after Andrew, Louisiana’s insurance market began to collapse after insurers began pulling out in the aftermath of Hurricane Katrina in 2005. Then, beginning with Hurricane Laura in 2020, a series of storms hit the state. Nine insurance companies went bankrupt; people rushed to adopt the state version of the Citizens of Florida plan.

The state’s insurance market “is in crisis,” Louisiana Insurance Commissioner James J. Donelon said in an interview.

In December, Louisiana had to increase the premiums for the coverage provided by its Citizens plan by 63 percent, to an average of $4,700 a year. In March, it borrowed $500 million from the bond market to pay off the claims of homeowners who had been abandoned when their private insurers went bankrupt, Donelon said. The state recently agreed to new subsidies for private insurers, essentially paying them to do business in the state.

Mr Donelon said he hoped the subsidies would stabilize the market. But Jesse Keenan, a professor at Tulane University in New Orleans and an expert on climate adaptation and finance, said it would be hard to change the state’s insurance market. The high cost of insurance has begun to affect home prices, he said.

In the past, it would have been possible for some communities—those where homes are passed down from generation to generation, without the need for mortgages and without banks requiring insurance—to be completely uninsured. But as climate change makes storms more intense, that’s no longer an option.

“There just isn’t enough wealth in those low-income communities to continue to rebuild, storm after storm,” Dr. Keenan said.

Even as homeowners in coastal states face rising costs for wind coverage, they’re being pushed from another direction: flood insurance.

In 1968, Congress created the National Flood Insurance Program, which offered taxpayer-supported coverage to homeowners. As with the California wildfires and Florida hurricanes, the flood program arose from what economists call a market failure: Private insurers didn’t provide flood coverage, leaving homeowners without options.

The program achieved its primary goal, making flood insurance widely available at a price homeowners can afford. But as the storms grew more severe, the program faced mounting losses.

In 2021, FEMA, which administers the program, began setting fees equal to the actual flood risk homeowners face, an effort to better communicate the true danger different properties face and also to contain losses to the government.

Those increases, which are being implemented gradually over the years, in some cases amount to huge jumps in price. The current cost of flood insurance for single-family homes nationwide is $888 a year, according to FEMA. Under the new risk-based pricing, that average cost would be $1,808.

And by the time current policyholders have to pay premiums that reflect that total risk, the impacts of climate change could increase them much more.

“Properties located in high-risk areas should plan for and expect to pay for that risk,” David Maurstad, head of the flood insurance program, said in a statement.

The best way for lawmakers to help keep insurance affordable is to reduce the risk people face, said Carolyn Kousky, associate vice president for economics and policy at the Environmental Defense Fund. For example, officials could impose stricter building standards in vulnerable areas.

Government-mandated programs, such as the flood insurance plan or Citizens in Florida and Louisiana, were intended to be a support for the private market. But as climate impacts worsen, he said, “we’re now at the point where that starts to crack.”

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Sara Marcus
Sara Marcushttps://unlistednews.com
Meet Sara Marcus, our newest addition to the Unlisted News team! Sara is a talented author and cultural critic, whose work has appeared in a variety of publications. Sara's writing style is characterized by its incisiveness and thought-provoking nature, and her insightful commentary on music, politics, and social justice is sure to captivate our readers. We are thrilled to have her join our team and look forward to sharing her work with our readers.
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