Extreme Weather: Understand the Ripple Effects on Your Insurance

JANUARY 9, 2024

In September and October 2023, a global research firm conducted a survey of 31 countries regarding extreme weather.1 The results show that billions of people expect to be displaced within the next 25 years due to natural disasters. The U.S. ranked below average, with only 35% of Americans believing they will be impacted.

Statistics show more Americans should be concerned. The number of climate events in the U.S. is rising — and so are the losses from the damage they bring.

Extreme weather events are not only increasing in frequency, but in severity, too. Leaving little time for recuperation, multiple industries are impacted by these events, the costs of which negatively impact consumers’ finances.

Extreme Weather and the Insurance Industry

Insurance companies are moving out of areas they deem high risk. First Street Foundation, a nonprofit research company, reports there are 39 million homes insured via private insurance companies. As insurance companies cease business in areas plagued by natural disasters, the financial security of homeowners is left at risk.

A perfect example is Florida. Since 2022, three insurance companies have withdrawn from the state of Florida. More recently, AAA has decided to not renew exposures they deem as “high risk.” Fifteen other carriers are not issuing new policies in Florida.2

This leaves homeowners scrambling for insurance coverage. Quotes received are often cost prohibitive. As a result, many homeowners have turned to bare-bone policies offered by state and federal governments. Unfortunately, while affordable, these policies leave customers grossly underinsured.

Extreme Weather and the Real Estate Market

The insurance industry is not the only business impacted by extreme weather. The real estate market is also negatively affected. When natural disasters impact insurance, premiums rise and underwriting offerings start constricting. And when homeowners insurance becomes scarce or pricey, home values and sales decrease.

According to Redfin, a total of 54,000 people canceled home purchase contracts this past October. This is the equivalent of 17.2% of homes under contract in October. What has caused these cancellations? Redfin Tampa Sales Manager Eric Auciello said, “Home prices are high, mortgage rates are high and insurance costs are high, and when buyers see the final number, a lot of them are backing out.”3

Wildfire-plagued California is also feeling the impact of extreme weather. Homeowners have seen insurance premiums quadruple. The result is a 39% decrease in property values, according to a First Street Foundation report.4

Extreme Weather and the Construction Industry

When natural disasters strike, communities rely on the construction industry for repairs. Unfortunately, the increase in severity and frequency of natural disasters has impacted the construction industry in multiple ways. From labor shortages to material scarcity, the construction industry is facing challenges.

Contractors continue to face labor shortages. Not only are there issues of securing skilled labor, but extreme weather can make it difficult for a contractor’s workers to get to the job site, leading to recovery delays. When workers are able to reach the site, they’re often faced with material challenges. Natural disasters bring demand surges for materials from both residential and commercial property owners. Contractors are forced to bid on available materials, which drives up costs to repair by more than 20%.5

Know Your Risk

Whether you currently own a home or are in the market to purchase one, there are things you can do to offset the impact of severe weather.

  • Know your risk. Technology has made it easier for consumers to research the risk posed to specific property. The government is updating flood maps. If you own or are shopping for a home, you can go to https://msc.fema.gov/portal/home, input your address and check for flood risks at the location.
  • Realtor.com also provides environmental risks for a location. Input the location and the site rates the wildfire and flood risks at the location. The site will also indicate if the risks are reducing due to mitigation efforts by the community.
  • Riskfactor.com not only provides fire and flood information, but goes a bit further to provide more environmental information on a location. The site includes multiple risks and rates how likely it is the location will be impacted by extreme weather.