On the morning of September 28, 2024, residents of East Tennessee and western North Carolina woke to the shock and trauma of homes, businesses, and loved ones lost to the epic flooding caused by Hurricane Helene. In the days that followed, many also discovered that their property insurance would not cover their losses. Because cities like Asheville hadn’t been considered prime targets for hurricanes or flooding, its residents thought they were safe. Their misreckoning may serve as a foreboding of how climate-primed disasters are extending their reach and impact.
Weather-related damage has always been a foreseeable but fairly remote risk for most people—a perennial progression of wildfires in California, drought and tornadoes in the Central Plains, floods along the Mississippi, hurricanes in Florida. Even though these events have become more extreme, residents living outside climate danger zones have tended to consider themselves relatively safe from these seasonal weather disasters. However, as Asheville learned, the costs of coping with increased climate change risks are starting to ripple beyond the traditionally hardest-hit areas. The first waves are already being felt by those who make their living by taking on property risks–insurance companies.
Across the insurance industry, alarms are being sounded about the financial costs of climate change. Storms, wind, hail, and wildfires are generating a spike in property insurance claims nationwide. Crop losses due to heat waves, droughts, and floods are leading to increased costs for crop insurers and their federal subsidizers. As insurers seek to protect themselves against the price of doing business in their increasingly volatile industry, the cost to reinsurers–the companies who insure the insurers against catastrophic loss–is also rising.
Insurance companies, though vested with matters of deep public concern, operate without federal oversight. Instead, they are subject to varying regulations across each state that restrict premium prices and affect laws on coverage options and payments of claims. This patchwork of regulations allows insurance companies to recoup the costs of operating in states with pricing restrictions or more extreme weather events by raising premiums or limiting coverage in states with fewer regulations. Thus, the storms that lash coastal areas and the fires that rage in drought-prone forests are affecting everyone.
In addition to raising premiums, some insurers are refusing coverage to property owners in areas most vulnerable to climate-change risk. Property insurers have become especially cautious about betting against flood damage, the costliest of all climate-related property claims. The National Flood Insurance Program (NFIP) has stepped in to fill this gap for more than five million policyholders. It charges increased premiums to homeowners seeking protection of their investments in flood zones (which are often poorly identified) and discourages further development. But the NFIP is stressed by overuse and must rely on federal funding that lawmakers are increasingly skeptical of providing. Some states have also stepped in to provide their own flood insurance programs. The expensive premiums charged by these programs cover only part of their costs–the rest is borne by taxpayers.
Finally, insurance costs are also affecting home values and prices. Property insurance is required by lenders in order for prospective homeowners to obtain mortgages. As a result, higher premiums may negatively impact a home’s value, especially if expensive flood insurance is also required. Increasingly, online real estate marketplaces are disclosing climate risk to potential buyers, an indication that prospective homeowners and lenders are taking this risk seriously.
Increasingly, people are talking about climate resilience—the sense they can survive these disasters by taking a defensive stance against the consequences of climate change instead of fighting its causes. A resilience mindset may be useful–even necessary–in places that are already feeling the impact of rising sea levels and major fires. But, as the citizens of Asheville learned, even homeowners and business people who managed through luck or forethought to escape severe damage to their own properties found themselves stranded and isolated, lacking access to highways, water and sewage systems, and cell phone service. Spending weeks cut off from vital supply lines, essential infrastructure, and communication networks gave area residents a sobering look into a world in which there is truly nowhere to hide.
Financing disaster recovery has always been more politically popular than supporting measures to halt the climate crisis. But no matter what someone thinks about the science of global warming, the insurance companies who make their money by betting against disasters will have the last word about who will ultimately pay for the damage climate change is causing—and that’s all of us.
Cynthia Holzapfel
Environmental journalist and activist, ThirdAct TN
https://www.nytimes.com/interactive/2024/07/08/climate/home-insurance-climate-change.html
https://www.theatlantic.com/science/archive/2024/10/hurricane-helene-cost-disasters/680168/
https://www.nature.com/articles/s41558-023-01594-8
https://www.politico.com/news/2024/10/07/hurricanes-eroding-washingtons-disaster-programs-00182784
https://farmpolicynews.illinois.edu/2024/02/crop-insurance-costs-projected-to-jump-29/