Home insurance rates are rising due to climate change. What could break that cycle?
Home ownership can be daunting, but there is an order that things tend to follow:
But what happens to homeowners if an insurance company decides it doesn't want to do business where they live anymore? For Beth Pratt, who lives outside Yosemite National Park in California, that question has become a reality.
"I just got a letter, not even a 'Hey, we want these things done.' It was, 'We're not renewing you,'" she told NPR last year.
Her insurer of 31 years said the fire risk in her area was too great, and simply declined to cover her anymore.
"These are not luxury items for myself or others," Pratt said. "You have to have insurance. So I think that policies and how we insure people probably has to change."
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Increasing premiums
Even if private insurance companies stop short of pulling out of a high-risk region, they're often raising premiums. In many instances, they say that's to cover the increasing losses from weather-related property damage.
Nationwide, home insurance costs are up 21% since 2015, according to a 2021 LexisNexis trend report.
It's even more in areas like hurricane-prone Florida, where insurance costs more than 3.5 times the national average last year. Costs aren't projected to go down anytime soon either: climate change is making storms and wildfires more intense, and more destructive.
Last year, the U.S. had a record 28 disasters that cost more than a billion dollars in damage.
In a Senate Budget Committee hearing last month, chairman Sheldon Whitehouse (D-RI), compared the state of home insurance today to another recent housing market disaster.
"This all sounds eerily reminiscent of the run-up to the mortgage meltdown of 2008," he said.
Addressing the future
This month, the U.S. Department of Housing and Urban development held a summit to address the spike in home insurance costs.
Acting HUD Secretary Adrianne Todman spoke with Consider This host Ari Shapiro about what her department can do to resolve this crisis. Todman says that her main concern lies in how these changing rates will impact housing stability for all types of people.
"We have first-time homeowners who are unable to purchase a home because of the unexpected cost of insurance. We have some of our existing affordable housing providers seeing their insurance costs go up by levels they've never seen before," Todman said. "And they're having to make some financial decisions about what they invest in."
That leaves some affordable housing providers considering whether they can make necessary repairs or keep their existing staff, she said, adding: "None of that is ever good for tenants."
And while there is now increased risk for insurance providers, Todman says that the rates that premiums have increased don't seem to add up.
"It is rather curious, the level of the increase that happens even year over year. Something else that's rather curious is where the increases are occurring. I'm hearing ... from some of our affordable housing providers that some of the insurance increase may be happening in certain types of their housing portfolio, but not all part of their housing portfolio."
So, could this be another case of companies taking advantage of climate inflation to gouge prices? Todman says it's possible, but there isn't enough existing data to say so definitively.
"We don't have the data holistically — or at the micro level, at the neighborhood level — to know, are insurers doing that? Some people will say, 'Yes, that's exactly what they're doing,' but we don't have the data yet to suggest that," she said, adding that gathering that data is one purpose for this month's summit
