Many homeowners in the United States are seeing a rise in home insurance due to forest fires, rising sea levels and an increase in hurricane activity.
With climate change creating more extreme weather events, insurance companies are forced to pay out larger claims, leading them to adjust premiums to maintain profitability. The rising costs of materials and construction also contribute to the uptick in insurance prices, as rebuilding expenses surge along with the overall inflation of the housing market.
Rising Home Insurance Costs and the impact on Homebuyers
The ramifications of escalating home insurance costs are profound, particularly for prospective homebuyers. One immediate consequence is the strain on the affordability of homes. As insurance premiums climb, they become a part of the overall homeownership cost, making it more challenging for all home buyers to secure their dream homes. For many first-time homebuyers, the costs of the down payment, property taxes, mortgage payments and insurance can create significant barriers to home ownership.
To better understand homeowners insurance, we’ll start with data from NOAA.
According to a NOAA State of the Science Fact Sheet on Atlantic hurricanes and climate change,
Several measures of historical Atlantic hurricane activity, including annual numbers of tropical storms, hurricanes, and major hurricanes, as well as hurricane intensities, power dissipation index (PDI), and rapid intensification occurrence, all show pronounced increases since around 1980.
And
Based on a survey of existing studies, with regards to future North Atlantic, Caribbean Sea, and Gulf of Mexico tropical storm and hurricane activity, a 2 ˚C (4 ˚F) global warming scenario would be expected to lead to storm inundation levels during hurricane surge events increasing due to sea level rise, anticipated to rise by about 2 to 3 ft (0.4 to 0.8 meters) by 2100.
This sea level rise will contribute toward significantly more coastal destruction and increased economic damages.
The Reality of Climate Change
Climate change is no longer a distant concern discussed in scientific circles; it has become a tangible force reshaping our daily lives. The increase in the frequency and intensity of natural disasters, from hurricanes and wildfires to floods and tornadoes, has direct repercussions on the insurance industry. Insurers are grappling with higher payouts for damages, prompting them to recalibrate risk assessments and, inevitably, raise insurance premiums.
The correlation between climate change and insurance costs is multifaceted.
Elevated global temperatures contribute to the intensification of weather patterns, leading to more severe storms and widespread damage. Coastal areas are particularly vulnerable, facing not only the direct impact of hurricanes but also the secondary effects such as storm surges and rising sea levels.
As a result, homes in these areas are hit with higher insurance premiums to account for the increased risk.
Implications for Homebuyers
The costs of home insurance due to climate change could have a solid impact on first time home buyers.
High-risk areas, often the ones most affected by climate change-induced events, have high insurance premiums. This creates a scenario where those who can least afford the additional financial burden end up paying more, exacerbating existing economic disparities.
A Look at Florida
Homeowners insurance in Florida is known for being relatively high compared to other states in the United States. Several factors contribute to the elevated cost of home insurance in Florida
Florida is particularly susceptible to hurricanes and high-wind events due to its geographic location. The state is surrounded by warm waters, making it a prime target for hurricanes originating in the Atlantic. The increased risk of wind damage, storm surges, and flooding during hurricane events prompts insurance companies to charge higher premiums to cover potential claims.
Florida faces a higher frequency of other natural disasters, including tornadoes, floods, and tropical storms.
Many insurance companies in Florida have experienced significant losses in the past due to major weather events. To recoup these losses, insurance companies raise premiums for all policyholders in the state.
Florida has a legal environment that some say encourages litigation related to insurance claims. This results in higher claims costs for insurers, leading them to adjust premiums to cover potential legal expenses and settlements.
What Does a Home Buyer Need to Do?
Invest in Resilience
Homes equipped with resilient features are not only better equipped to withstand the impact of extreme weather events but may also qualify for reduced insurance premiums. Consider implementing measures such as reinforced roofing, impact-resistant windows, and elevated foundations to enhance the property's resilience.
Know the Risk of a Location
Understanding the specific risks associated with a property's location is crucial. Buying a home in a high-risk zone for floods, wildfires, or hurricanes will inevitably result in higher insurance costs. Prospective homebuyers should carefully weigh these risks and associated premiums when choosing a location.
Shop Insurance Companies
The insurance market is competitive, and rates can vary significantly among providers. Homebuyers should invest time in researching and obtaining quotes from multiple insurers. This not only helps in identifying more affordable coverage but also ensures that the chosen policy meets specific needs.
An important final note:
Energy Efficient Home Improvement Credit in 2024
If you make certain energy-efficient improvements to your home after January 1, 2024, you could qualify for a tax credit.
The credit includes: qualified energy efficient improvements, home energy property expenses, home energy audits
There are limits on the annual credit and the home improvements must be to your main home in the United States.
For more details on the credits and deductions, here’s a link to the page on the IRS website.
More information from NOAA on hurricanes and rising sea levels
