In a time when rising insurance costs are impacting home building projects across the country, a non-profit group focusing on climate issues is forecasting a significant increase in rates within states most prone to natural disasters.
According to the Insurance Issue report issued by the New York-based First Street Foundation, some 39 million properties, or around 25% of all homes in the country, are currently underpriced due to not taking into account probable climate risk insurance increases.
The report notes that just under 24 million properties are currently subject to rising rates due to the risk of wind damage, while 12 million are facing the same issue because of possible flood damage. A smaller 4.4 million properties, primarily in the West, could see an increase in rates as a result of wildfires.
The report also estimates that up to 34,000 homes by the year 2050 will burn down on an annual basis due to wildfires.
Noting that some states have enacted policies suppressing insurance prices, the report notes “the insurance industry is limiting and withdrawing coverage in high-risk wildfire areas due to state regulatory policies, increasing risk from climate change, and recent economic shifts.”
Result? Many insurance companies are effectively labeling some areas of the country as uninsurable, with state-backed “insurers of last resort” often becoming the only alternative for homeowners.
“Without the ability to insure properties in high-risk areas with relatively affordable policies, homeowners will not be able to afford the cost of ownership associated with homes in those areas and property values will deflate,” says the report.
This isn’t just idle forecasting: in California, insurance rates have risen by nearly 800% for homes in areas subject to wildfire, while significant increases have also been seen related to properties in the southeastern portion of Louisiana near flood-prone New Orleans where rates last year went up by 27%.
That the economic impact of wildfires is growing is seen in two statistics: according to the National Oceanic and Atmospheric Administration, wildfires cost around $8 billion in losses between 2012 and 2016. Between 2018 and 2021, that figure had risen to $79.8 billion.
By Garry Boulard
