Tornadoes have been striking the country at a record rate this year so far, according to numbers released from the U.S. Storm Prediction Center (536 tornadoes in 2017, based on preliminary data at the time of this writing). Meanwhile, in many parts of the country, severe storms have been passing through almost with the regularity of an assembly line, blamed by record temperatures at the water’s surface in the Gulf of Mexico. Further, 2016 was the warmest year for the planet on record, according to the World Meteorological Organization.
All of this undoubtedly would make any homeowner wonder: As heat, tornadoes and storms continue to break records, will the extreme weather eventually break my home insurance policy?
Probably not. But as the years go on, when it comes to your homeowners insurance coverage, there will be changes.
[See: 9 Ways to Reduce Your Insurance Costs.]
You may end up factoring in climate change before you buy a home. It depends where you’re looking for a house, of course, and this is already happening. Real estate agents and companies have been furnishing data that suggests home sales in flood-prone areas have been growing at a slower rate than in counties that don’t have a reputation for flooding. For instance, last year, ATTOM Data Solutions, a source for comprehensive housing data, released its annual U.S. Natural Hazard Housing Risk Index, which found that home sales had fallen below the national average in counties with the highest risk of earthquakes, hurricane storm surge, wildfires and floods, while counties with the lowest risk for those natural hazards have seen home sales volumes increase faster than the national average.
People are going to be thinking about natural disasters and their homes more frequently than they used to, says Donna Childs, who owns Prisere LLC, a Warwick, Rhode Island-based company that consults businesses on disaster prevention and specializes in helping companies come up with solutions for reducing their risk to the negative consequences of climate change.
According to Childs, in the past your pre-purchase due diligence “involved a home inspection and consideration of the neighborhood with regard to such issues as the quality of the local school system,” she says. “Now … you must consider the extent to which the community is at risk from rising water levels and other threats.”
She adds that you’ll also want to consider if the community has done anything to reduce or prevent climate change-related disasters.
Lenders are likely to factor in climate change, as well. About a year ago, Sean Becketti, the chief economist for Freddie Mac, the government-backed mortgage company, wrote on their website that climate change could be even worse for the housing industry than the Great Recession was:
“In the housing crisis, a significant share of borrowers continued to make their mortgage payments even though the values of their homes were less than the balances of their mortgages. It is less likely that borrowers will continue to make mortgage payments if their homes are literally underwater.”
[See: 10 Terms First-Time Homebuyers Should Know.]
As weather records rise, so will your premiums. Costs eventually go up for everything, of course, and so premiums for coverage would climb in the future, anyway. But by how much?
Coverage cost increases could be significant, suggests Richard Lewis, the digital marketing manager for Elephant Auto Insurance, which also sells property insurance.
Lewis says that if the planet continues to heat up, increases in hurricane wind speeds will lead to increased home insurance losses.
“Increases in damages result in an increase in claims, which, for insurance companies, means higher losses and, for homeowners, may mean higher insurance rates,” Lewis says.
And it seems a safe bet that flood insurance premiums will likely shoot up in the near future. The National Flood Insurance Program has been struggling for years and is currently $23 billion in debt.
Creative discounts may offset some of those higher premiums. Lewis thinks home insurance companies may, at some point, offer coverage discounts to homeowners who are doing their part to make the planet more eco-friendly.
“For example, ‘green’ homes could potentially receive discounted rates because these homeowners’ roles in reducing climate change would help lower claims and thus lower rates,” Lewis says.
Childs sees discounts on coverage in the future, as well. “I predict the insurance industry will offer more incentives, in the form of lower deductibles and more favorable premium pricing, to homeowners who take measures to make their properties more climate-resilient,” she says.
[See: 10 Ways to Reduce Your Housing Costs in Retirement.]
Eliminating coverage is unlikely to happen. If you’re wondering if one day, due to an onslaught of extreme wind, hail, rain and so forth, homeowners insurance will cease to exist, that’s unlikely, says Dan Weedin, a business growth consultant in Poulsbo, Washington, who spent 10 years working in the insurance industry.
“You will never see fire, wind damage and hail excluded,” Weedin says. “The one thing that might happen is areas with higher likelihood could see increased rates, limits to loss damage or larger deductibles required.”
But, he adds, that’s already happening. “Insurers discriminate on rates based on location,” Weedin says, but he points out that’s how it should be.
“Earthquake insurance is a separate policy. I guarantee you that it would cost me exponentially more to purchase earthquake insurance in Seattle than a person living in Topeka, Kansas,” he says.
Still, while homeowners insurance isn’t likely to go anywhere, coverage will change. But because insurers look to what happened in the past as a guide on how they should price insurance in the future, homeowners insurance policies won’t likely change too much, too soon, Weedin and other home insurance experts say. But if extreme weather keeps up, and there’s eventually a rich history of your region frequently enduring golf ball-sized hail and tornadic winds, to have a good homeowners policy, you may need to be rich.
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How Climate Change Will Impact Homeowners Insurance originally appeared on usnews.com
