American homeowners and renters are paying more for home insurance due to an increase in disastrous weather events triggered by climate change. Since 1980, the first year on record, “the U.S. has sustained 341 separate weather and climate disasters where overall damages/costs reached or exceeded $1 billion,” according to the National Centers for Environmental Information. Last year was the eighth consecutive year in which the U.S. experienced 10 or more separate billion-dollar disasters.
By 2021, 1 in 10 homes had been affected by these disasters, the 2021 CoreLogic Climate Change Catastrophe Report revealed. Insurance companies have reacted to the risk by increasing rates. An analysis by Policygenius, for example, showed that 90% of home insurance premiums increased from May 2021 to July 2022, with tornado-prone Arkansas seeing the highest percentage increase.
How Climate Change Damages Homes
Climate change is exacerbating the effects of deadly weather events, resulting in an increase in the number of homes damaged and the cost of insuring them. In its “Peril & Promise” initiative, PBS explained how climate change is worsening the following natural disasters:
- Flooding from increased precipitation and higher sea levels
- Stronger storms because of the increased water vapor held in clouds
- Earthquakes, potentially, due to the effects of surface water from rain and snow on seismicity
- Extreme temperatures from greenhouse gas (heat) and warming of the polar vortex (cold)
- Landslides triggered by rainfall and altered evaporation
- Droughts in regions where increased evaporation promotes more arid conditions
- Wildfires, due to heat and drought
- Volcanoes, possibly, from changes in surface water promoting eruptions
How Are Insurance Rates Determined?
Insurance rates are based on how likely a customer is to file an insurance claim. Insurers look at a number of factors to determine your risk level, including the claims history of homes in your area, according to the National Association of Insurance Commissioners. Areas prone to natural disasters naturally have more insurance claims, so homes located there are often more expensive to insure. This is more relevant to homeowners insurance policies, but renters insurance, which is a type of home insurance that covers tenants’ personal property, is also affected.
The NAIC lists additional factors in its “Consumer’s Guide to Home Insurance.”
- Cost to rebuild your home
- Materials used to construct your home
- Distance to fire hydrants and emergency services
- Your coverages, including endorsements like earthquake coverage and wind coverage in areas prone to hurricanes
- Your deductibles
- Credit-based insurance score, in states that allow it
- Claims history
- Safety equipment installed in your home
- Pets, especially dogs
- Business use of your home
The specific formulas insurance companies use vary, but insurers group policyholders into tiers based on the risk factors they have in common. Lower tiers indicate lower risk and lower insurance rates, according to PSA Financial Advisors.
How To Get the Best Deal on Your Homeowners or Renters Insurance
Even if you live in an area vulnerable to climate-related natural disasters and have higher rates as a result, you have options for saving money on your homeowners or renters insurance.
Mitigate the Risk
Disaster-proofing your home can result in lower premiums because this reduces the risk of damage to your home. Florida insurers are actually required to discount policies for homeowners who take hurricane-mitigation measures such as reinforcing roofs and decks and installing water barriers and approved storm shutters. The measures you take should align with the types of events your area is vulnerable to. They might include:
- Impact-resistant windows
- Reinforced doors
- Ceiling braces
- Mud/water diversion
- Sump pump
- Flood vents
- Fireproof roofing material
- Fire-resistant siding
- Smoke detectors
- Security system
- Water leak monitoring and shut-off
Increase Your Deductible
A deductible is the amount of a claim that you’re responsible for paying. A higher deductible reduces the amount your insurance would have to pay on a claim, so you pay less for your insurance.
Deductibles typically start at $500 or $1,000. Be sure not to increase it so much that you won’t be able to pay it in the event of a covered loss. In fact, it’s a good idea to put an amount equal to your deductible into an emergency savings account.
Bundle Your Policies
Insurance companies often discount policies for customers who purchase more than one type. Progressive, for example, offers an average discount of 4% when customers bundle their homeowners or renters insurance with auto insurance.
Your actual discount may vary. Read the fine print to make sure you understand the discount terms and conditions. Some insurers include a new-customer discount in the savings they promote, which could lead to an unexpected rate increase the following year. Also, the Insurance Information Institute recommends shopping for policies separately — you might find individual policies from different companies that cost less.
Affinity Group Discounts
The III recommends checking with your employer to see if they administer a group insurance program, and if so, whether homeowners insurance is part of it. Other groups, such as professional, alumni and business groups might discount packages, the III notes. Seniors, along with educators and civil servants, might also find age- and/or occupation-based discounts.
Some insurers reward long-time customers with reduced premiums and other perks. But don’t assume that’s the best deal available. The III recommends shopping around periodically to compare rates.
Review Your Coverages
It’s a good idea to read through your policy from time to time to look for coverages you no longer need. Also make sure you’re not overinsured. Your structure coverage should cover the cost of rebuilding your home, which is different than the market value of your home.
Know Your Climate Risk
Whether you own your home or rent it, understanding your climate risk can help you budget for future insurance-rate hikes and other costs resulting from climate change. If you live in a vulnerable area, your costs are likely to increase more than average, according to the Consumer Financial Protection Bureau.
The Federal Emergency Management Agency produces a National Risk Index for natural hazard risks in the U.S. The index provides baseline risk measurements for each county and Census tract, according to FEMA. In addition to seeing how your county’s risk compares to the national risk level, you can view risk scores for over a dozen disasters, such as avalanches, earthquakes, hurricanes, wildfires and winter weather.
Protect Your Investment in Your Home and Personal Property
Industry experts agree that climate change will continue to cause an increasing number of weather events that damage homes and drive up insurance rates. Understanding and budgeting for those increases will lessen their impact on your finances. But avoid paying more than you need to — take advantage of discounts, and periodically shop around for better deals.
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- Policygenius. 2022. "Home insurance prices are rising even faster than inflation."
- Freddie Mac. 2022. "Is Your Home Insured for a Natural Disaster?"
- Insurance Information Institute. "How to save money on your homeowners insurance."
- HomeAdvisor. 2022. "How to Disaster-Proof Your Home."
- Consumer Financial Protection Bureau. 2022. "Climate risk should be considered in housing decisions."
- CoreLogic. 2022. "CoreLogic Climate Change Catastrophe Report Estimates 1 in 10 U.S. Residential Properties Impacted by Natural Disasters in 2021."
- National Centers for Environmental Information. "Annual 2022 National Climate Report."
- PSA Financial Advisors. "Why Homeowners’ Insurance Rates Vary Greatly."