Climate Change Drives Up Home Insurance Costs in Disaster-Prone Areas
A recent report by the Treasury Department reveals that homeowners in regions most affected by climate-related natural disasters are facing skyrocketing insurance costs. The study, which covers 2018-2022, highlights the devastating impact of 84 disasters costing $1 billion or more, resulting in a staggering $609 billion in damages.
Rising Premiums and Inaccessibility
During this period, insurance costs across all categories increased by 8.7%, outpacing inflation. However, the burden fell disproportionately on those living in areas most prone to climate-related events. Homeowners in the 20% of zip codes with the highest expected annual losses paid an average premium of $2,321, a whopping 82% more than those in the lowest-risk areas.
A Growing Challenge for Homeowners and Insurers
“Homeowners insurance is becoming increasingly unaffordable and inaccessible for consumers as climate-related events pose growing challenges to both homeowners and insurers,” warns Nellie Liang, undersecretary of the Treasury for domestic finance.
Wildfires and Other Climate-Related Disasters
The report’s release coincides with the devastating wildfires raging in the Los Angeles area, which have claimed at least 25 lives and displaced 180,000 homeowners. Treasury Secretary Janet Yellen notes that the costs from these fires are still unknown, but the report highlights an ongoing serious problem.
Alarming Trends and Threats to Prosperity
During the study period, there were nearly double the annual total of disasters declared for climate-related events compared to the 1960-2010 period. “This report identifies alarming trends of rising costs of insurance, all of which threaten the long-term prosperity of American families,” Yellen emphasizes.
Consequences for Homeowners and Insurers
In high-risk areas, nonrenewal rates were about 80% higher than in less-risky areas, while insurers paid average claims of $24,000, compared to $19,000 in lowest-risk regions. The Southeast and Southwest regions, prone to hurricanes and wildfires, respectively, experienced higher claim frequencies and average loss claims.
A Call to Action
The Treasury Department hopes that the incoming administration will use this report as a catalyst for action. “We certainly are hopeful that our successors stay focused on this issue and continue to produce important research on this issue and think about important and creative ways to address it,” an official said.
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