DS News

72 making coverage unattainable for homeowners in these areas. Not surprisingly, climate change has become a top risk for insurers, according to a recent Deloitte study. Stronger and more frequent natural disasters are destroying homes and businesses at record-breaking rates nearly every year. Just look at the economic damage caused by the following events: » Hurricane Harvey (2017): $125 billion » California wildfires (2018): $148 billion » e record-breaking 2020 hurricane season: $65 billion » Texas winter storm of 2021: roughly $130 billion » Hurricane Ida (2021): projected to reach up to $80 billion Insurers' costs are based on the management of risk—the greater the risk, the more expensive your premium. Continued catastrophic losses due to climate events are nudging insurers to be ever more cautious. is translates to higher insurance costs and increased property taxes. It also limits coverage in the most vulnerable areas. THE MOST COMMON CLIMATE DISASTERS AFFECTING HOMEOWNERS Flooding Flooding is currently the most common and costly natural disaster in the United States, and climate change significantly increases the danger. According to the Federal Emergency Management Agency (FEMA), 98% of all U.S. counties have experienced at least one flooding event. is has caused more than $155 billion worth of damage over the last decade. e rub for homeowners is that most home insurance policies do not cover flooding. As a result, more than 90% of the flood insurance policies in the U.S. are covered by FEMA's National Flood Insurance Program (NFIP). is program is set to get a major overhaul in October 2021. At that point, FEMA will begin factoring in different metrics to account for catastrophic events driven by climate change. e move is meant to adjust premiums so that they more accurately reflect risk levels. Fires Fire is another growing threat. e repeated California wildfires have caused insurers to limit fire insurance policies or eliminate coverage—forcing more and more homeowners into expensive, last-resort Fair Access to Insurance Requirements (FAIR) plans. FAIR plans cost significantly more while providing less coverage. ey were designed to serve a small number of homeowners in the most high-risk areas. However, between 2018 and 2019, California saw a 225% increase in these policyholders. What's more, 31% of all insurers stopped providing fire coverage altogether. As increased droughts and wildfires impact more states than ever, homeowners across the country could face significantly higher costs. HOW INSURERS ARE RESPONDING Risk modeling is the name of the game. e truth is that standard insurance models were created using area data from the previous 30 years—but with climate change increasing risk factors, past data is no longer an accurate predictor of the future. Better data will help insurers provide higher-quality options to homeowners. Prevention will likely play a key role here. e bottom line is that, with more accurate data, insurers can provide more precise models and better coverage. However, having a more nuanced understanding of risk could also trigger premium increases in historically stable areas. Still, insurers will no longer plan by looking back. Instead, the idea is to give homeowners a clearer picture of the road ahead so that insurers can provide more robust coverage. HOW HOMEOWNERS CAN REDUCE COSTS ere are steps homeowners can take to help mitigate risk and reduce costs. e first is simply recognizing the personal and financial risks associated with climate change. Some action steps may include: » Tailoring Insurance Coverage. A homeowner in Miami or Los Angeles faces different risks than a homeowner in Omaha. Insurance policies should reflect that. Damage from a flood or earthquake isn't covered by a standard homeowners policy, so adding coverage to include events like these can be crucial in some areas. » Adjusting to "Green Standards." ese endorsements generally cover the costs of using environmentally friendly materials, low environment-impact processes, and energy-efficient replacement products. Some plans also cover the cost of buying electricity from another source after an outage if using wind or solar power. » Home Upgrades. Insurers may reduce your premiums if you install protective features like hurricane shutters or fire or hail- resistant roofs. ese efforts can lower rates and provide better protection. Buying a home is the most significant investment most families will ever undertake. Risk comes with the territory, especially if homebuyers live in an area affected by climate change. Unfortunately, rising premiums and coverage gaps are very likely in the short term. e good news is that insurers are taking steps to improve planning so they can provide homeowners with the coverage and protection they need and deserve. Ben Madick is the Co-Founder and CEO of Matic Insurance Services. Madick has over 15 years' experience in the mortgage and insurance industries. Prior to Matic, he co-founded MQMR, a firm that performs compliance risk management and audit support to mortgage lenders and banks of all sizes. Feature By: Ben Madick Insurers' costs are based on the management of risk—the greater the risk, the more expensive your premium. Continued catastrophic losses due to climate events are nudging insurers to be ever more cautious.

• Cover