The Housing Market Faces Higher Insurance Costs from Climate Change
As climate change intensifies, rising insurance premiums strain homeowners, emphasizing the urgent need for resilient housing solutions in the face of escalating risks and costs
By Patrick S. Duffy
For the last few months, it’s been almost impossible to avoid reading or hearing another story about the continuing impacts of climate change. That’s due not only to annual reviews of climate-related changes and costs by scientists, governments and the United Nations, but also monthly news updates of just how hot 2023 was versus pre-industrial times.
While many Americans have been able to adapt to these changes, the costs borne by the world’s insurance companies are starting to flow to some consumers in the form of significantly higher premiums for covering their homes. In some states including Florida and California, home insurance for many owners has either become prohibitively expensive or impossible to obtain from the private market, forcing them to turn to their mortgage servicers or state-run “insurers of last resort.” Although some of the owners may opt to accept the risk of self-insuring, that’s only possible if there are no mortgage liens on the property, and in the future even that may become untenable.
According to Toni Moss, who runs the advisory firm AmeriCatalyst and is an expert in global housing finance, insurance losses in the U.S. surpassed $100 billion, and $63 billion of those were paid out in claims. More recently in 2023, the National Oceanic and Atmospheric Administration’s National Centers for Environmental Information identified 28 confirmed natural disaster events related to weather and climate in which losses for each reached over $1 billion.
This trend is important to the housing market because insurance companies don’t take on risk as much; they act as agents transferring it between other parties. If global reinsurance issuers such as Munich Reinsurance Company or SwissRE dramatically hike their premiums to traditional insurers to counter their rising risks of claims, in turn, those insurance companies turn around to transfer their own risk back to their customers. That’s why premiums for some homeowners have increased so rapidly.
While many Americans have been able to adapt to these changes, the costs borne by the world’s insurance companies are starting to flow to some consumers in the form of significantly higher premiums for covering their homes.”
To better understand the threats and opportunities posed by climate change to the building industry and the overall housing market, this April Moss is planning a two-day, workshop-oriented conference in the Washington, D.C. area. Entitled “Going to Extremes” and including panelists with expertise in housing data, insurance, finance, higher education, home building, real estate investments, federal government agencies and climate science, Moss hopes that by the end of this event, panelists will be able to identity and quantify these risks as well as create plans to adapt and become increasingly resilient in the face of a more unstable climate.
To its credit, the homebuilding industry has long been at the forefront of building more green housing, and in the process has helped to educate home buyers on what’s possible. Whether through improved insulation and building wraps, low-E windows, more efficient lighting, programmable thermostats, solar panels, cool roofs, sourcing Energy Star® appliances or even matching floor plans to lot placement, new homes have a significantly lower carbon footprint of homes built even just 20 years ago.
This, in turn, has led to more remodeling and upgrading of existing homes to become more resilient against not just higher utility bills but also a more demanding climate. Considering that the average U.S. home was built over 40 years, the green home advantage of new construction is only expected to rise in the years ahead.
Although the NAHB is certainly officially supportive of continuing green home efforts, it also underscores the need to focus on the highest-risk areas and structures, base policies on sound scientific data using a clear methodology, and don’t exclude the financial and administrative impacts of introducing new regulations. The concern is that moving too fast and stringently with new requirements could impede the development of much-needed supply to address the pent-up demand for housing, which analysts at Bank of America have recently estimated could be as high as four million units. It’s a careful balancing act.
That’s also why an event like “Going to Extremes,” which seeks to assemble a small army of experts in multiple disciplines at one time, may help to jumpstart practical solutions, policies and procedures to prepare for and adapt to a changing climate in which the costs to build and insure against possible catastrophe are both realistic and more manageable.
Patrick S. Duffy is a regular contributor to the Builder.Media platform and is the founder and chief economist of MetroIntelligence.
