How Climate Impacts Your Home Insurance Policy

Esurance published a report in March 2019 that notes that insurance companies are beginning to increase premiums for customers residing in high-risk natural disasters areas. Home insurance companies are also reducing the number of coverage options and increasing deductibles. Read this article to learn more about how climate impacts your home insurance policy.

What Is a High-Risk Area?

As a homeowner, one question that you may have is what qualifies as a high-risk area. In general, an area is considered high-risk if it is crime-heavy or prone to experiencing severe storms. Some examples of high-risk areas include Florida and California, which are prone to flooding/hurricanes and earthquakes, respectively. However, as global temperatures continue to rise and the climate changes, the number of areas considered high-risk could go up drastically.

In fact, climate change may be having an impact on where people choose to buy properties. For example, in the past, beachfront properties were a popular choice among those who could afford them. However, the sea level has been rising and is projected to continue rising. In fact, several studies indicate that the rate of rising of the sea level is accelerating. Due to the flooding risk, many people are thinking twice about purchasing beachfront properties. The annual premium for flood insurance tends to be particularly expensive in these areas. Undoubtedly, the risk of natural disasters is not only affecting home insurance industry, but also the real estate industry. Higher home insurance costs may force realtors to sell homes at lower sale prices.

Natural Disasters and Premiums

The more natural disasters there are, the higher premiums will be. An increase in damages from natural disasters will lead to a higher volume of claims. Insurance companies will have to recoup these losses somehow. This may spell higher monthly premiums for policyholders. This is true even for those who don't reside in high-risk areas, as the way home insurance works is by pooling costs. Some experts believe that home insurance and flood insurance may eventually become unaffordable in some places.

Many policyholders are feeling the impact of changes in the climate through their home insurance policy. Therefore, it is important to take climate and location into consideration when buying a new home insurance policy or even a new home. For more information about how climate impacts your home insurance policy, don't hesitate to contact us.