This archive report was first published on 10 September 2021.
Insurance Companies Rethink Coverage for Homes in Climate-Ravaged Areas ¶
Published on September 10, 2021
Extreme weather events such as wildfires in California and Oregon, hurricanes along the Gulf Coast and Northeast, and hail in the Midwest are causing billions of dollars in property damage with increasing frequency.
As a result, insurance companies are rethinking which homes to cover and at what price, with some raising premiums two to five times in a year or denying coverage altogether.
"The severity, frequency, and size of the storms is really what's changed in the last two to three years," said Jean Sullivan, vice president of insurance sales at Precisely, a data analytics company that does geographic risk assessments.
"Insurance companies are finding out that the models they built just three to five years ago are not holding up in the last two to three years," she added. "That's concerning to them, and that's caused more pressure on the reinsurance companies that insure their risk, and more pressure on the homeowner."
Some homeowners are being asked to take on more responsibility for maintaining their properties, particularly in areas prone to hurricanes or wildfires.
"If you want to buy a house in the canyons of Beverly Hills, you should check that it's insurable," said Ross Buchmueller, president and chief executive of PURE Insurance, which focuses on high-net-worth clients.
"It's not about someone couldn't get insurance at a fair price. It's you can't get insurance at all in certain places," he added.
Others are turning to newer companies that provide coverage, although at a steep price.
"We just charged someone $1.9 million for insurance in California with a $1 million deductible," said Charles Williamson, chief executive of Vault, an insurance company that was started in 2017 and serves wealthy people in most East Coast states, California, Colorado, and Texas.
Some homeowners are even opting to install their own wildfire-protection systems instead of paying high premiums on insurance with limited coverage.
"It may be more economical for someone to spend money on loss-mitigation strategies than to pay so much in premium for policies that have large deductibles and poor coverage," said Gary Pasternack, head of insurance advisory at Bessemer Trust, a wealth management firm.
"It's playing out in California now in a significant way. People have to make a decision: Do I want to continue to buy insurance, or should I be making more of an investment in protecting my property against losses, particularly fire losses in the West?"
Location has also become an issue, with insurers using local climate data to be more precise in how they insure a property.
"Five, 10 years ago, if your property was in a certain ZIP code, that was good enough for them," said Jean Sullivan of Precisely. "They need to know more now. They need to know where that home is located on the property. Is there a flood zone? How close is it to a river? The cost for the same property at two ends of a street could be different because of the elevation."
