A combination of population growth in hazard zones, climate change, and bad policy may be creating property insurance issues for homeowners as these areas are becoming uninsurable or harder to insure. Areas prone to wind, flood, and wildfire damage are many of the same areas that have seen an increase in construction and relocation from other parts of the country. For example, Florida endures more hurricanes than other states, but experienced population growth between 2000 and 2020 at a rate twice as fast as the rest of the country.1 Over a similar timeframe, subsidies or distortions in insurance markets may have enabled migration to hazardous areas.
Hurricane Katrina of 2005, Hurricane Sandy of 2012, and Hurricanes Irma and Harvey of 2017 are among the top 10 costliest world natural disasters by insured losses.2 From 1990 to 2010, the population in areas most at risk of wildfires grew by 160%.1 California wildfires in 2020 and 2021 burned more area than the previous seven years combined.3 Now, insurance providers are dropping out of some markets like Florida and California altogether, where the perceived liability is too high to operate profitably.
High-risk areas are becoming more costly or harder to insure, how can homeowners prepare for the challenges ahead?
Risk Avoidance
If you are thinking about moving or buying a second home, it may be prudent to factor insurability into your assessment of preferred location and cost, potentially avoiding high-risk areas. The importance of insurance as a high or increasing expense may be greater if your move is already budget sensitive.
Mitigation Measures
Implementing risk mitigation measures can make a property more insurable. This may include reinforcing pre-existing structures, installing storm water systems, or hardscape and landscape modifications. Local governments may have guidelines to consult for best-practices, designs, and materials.
State Insurance Pools
In some cases, states may have insurance pools to provide coverage for high-risk properties that struggle to find coverage in the private market. These programs are typically designed as a last resort for those who cannot obtain coverage elsewhere. These may be found under the name FAIR Plan, or Fair Access to Insurance Requirements. Keep in mind that they are usually more expensive with limited protection compared to traditional private insurance.
Community Engagement and Policy Change
Engaging with your local community to address broader issues related to risk and sustainability could be beneficial. Initiatives focused on disaster preparedness, infrastructure improvements, and zoning regulations can help create a safer environment.
Explore Insurance Options
Some insurers may specialize in providing coverage for high-risk areas, so it’s worth shopping around to find the best options available. Policy design may require more attention as well, for example awareness of special deductibles that are higher for storm damage.
Talk to Neighbors
The folks next door or other similar homeowners may have insights as to what has worked for them, including required changes to the property or compromises on insurance costs and coverage.
Stay Informed and Plan Ahead
Stay informed about the specific risks in the area. Have appropriate emergency supplies and an emergency preparedness plan.
Self-Insure
Save for potential losses and have a financial plan in place. Homeowners may need to be prepared to cover certain risks themselves if insurance becomes unavailable or too expensive. This could include projecting the financial impact of a total loss and being psychologically comfortable with an uninsured property.
In Conclusion
A responsible and flexible approach is likely to incorporate several of the ideas above. Your plans may need to adapt over time, as local regulations are changed, or insurance products are modified to accommodate property owners subject to increased risks. Navigating these challenges may require consulting with a variety of professionals, including real estate agents, insurers, contractors, and financial advisors. If these concerns are part of your current or future lifestyle, Heritage can help discuss how they may factor into your overall financial health.
1. https://www.economist.com/united-states/2023/09/21/parts-of-america-are-becoming-uninsurable
2. https://www.iii.org/fact-statistic/facts-statistics-global-catastrophes
