How Climate Change Is Affecting Home Insurance Costs 

Severe weather and natural disasters are consistent threats to homeowners and their properties. Unfortunately, these conditions are largely beyond your control and may eventually impact your home regardless of due diligence or maintenance. Furthermore, climate change has forced many in the insurance industry to adjust coverage details in response to subsequent natural disasters and extreme conditions. As a policyholder, your rates could be affected significantly.

3 Ways Climate Change Impacts Premiums

Understanding how and why climate change may affect your home insurance rates may be an essential first step in limiting your increases and finding the most affordable price point. At the least, knowing what goes into your premium calculations may relieve frustration and confusion when getting renewal notices and bills.

Consider the following reasons a dynamic climate might impact your costs:

1. Increased claims costs—Put simply, as climate change generates additional and more severe natural disasters, carriers must compensate for projected increased costs. Extreme heat, powerful storms and raging wildfires can all be influenced by climate change, and as policyholders’ losses grow, insurers may need to pay more for claims. In response, insurance companies must charge more to make up for their own expenses.
2. Fewer coverage options—While insurance carriers may need to charge more due to the increasing frequency and severity of natural disasters and extreme weather, some may choose to exit the market. In recent years, some home insurance carriers have stopped selling new policies in Florida and California due to concerns regarding hurricanes and wildfires, respectively. When fewer options are available on the market, policyholders may have little choice but to pay more for coverage.
3. Rising reinsurance rates—Insurance companies typically purchase their own coverage to help financially protect them from particularly high claims costs. This process is called reinsurance. Recently, many reinsurance companies have increased their rates, citing the rising risk they’re taking to cover home insurers. Carriers may also charge more to make up for these higher costs.

We’re Here to Help

Contact DRD Insurance Agency today to learn more about homeowners insurance and factors that may impact your coverage and rates.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.