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Homeowners have already seen insurance costs rise with inflation in recent years, but climate change could drive these costs even higher. As extreme weather events become more frequent and severe, insurers are re-evaluating risks and adjusting their policies. This could lead to soaring premiums and, in some cases, homes becoming uninsurable.
👉 In this article, we’ll look at how climate change is reshaping homeowners insurance and what homeowners can do to protect their properties and manage insurance costs.
Homeowners insurance is designed to provide financial protection for your home and personal property in the event of damage or loss. It is a critical safety net that helps cover the costs associated with repairing or rebuilding your home after events such as fires, storms, or theft. Additionally, homeowners insurance can offer liability protection if someone is injured on your property, protecting you from potential legal and medical expenses.
Typically, homeowners insurance policies cover several key areas:
Understanding these coverage areas is crucial for homeowners to ensure they have adequate protection. With climate change leading to more frequent and severe weather events, having comprehensive homeowners insurance is more important than ever. However, as risks increase, so do premiums and deductibles, posing new challenges for homeowners seeking to protect their investments.
Climate change is causing an increase in both the frequency and intensity of natural disasters. Events such as wildfires, floods, hurricanes, and severe storms are becoming increasingly common. Wildfires in Europe and Canada for example have intensified in recent years, destroying homes and even entire communities. Hurricanes are also growing more powerful and destructive, causing unprecedented damage across coastal regions. Flooding, too, has become a common occurrence, made worse by rising sea levels and increased rainfall.
As natural disasters become more severe, the cost of claims has also surged. Homeowners affected by these events are filing for more extensive repairs and replacements, leading to higher payouts by insurers. The devastating wildfires in California for example led to billions of dollars in claims. Similarly, hurricane damage in states like Florida and Louisiana has resulted in substantial insurance losses. This increase in the cost of claims forces insurers to raise premiums and deductibles to manage the financial risk, making it more expensive for homeowners to obtain adequate coverage.
💡 According to Swiss Re, the world’s largest reinsurer, property damage costs from natural disasters such as wildfires, floods, and hurricanes in the U.S. could rise by over 60% by 2040 due to climate change. Swiss Re also predicts that, globally, homeowners insurance premiums could increase by an average of 5.3% annually, largely driven by the impacts of climate change.
Climate change is also causing geographic shifts in risk zones, altering how insurers calculate premiums. Areas that were once considered low-risk are now facing higher probabilities of natural disasters. For example, regions previously considered low-risk for flooding are now experiencing flood events as a result of changing weather patterns and rising sea levels. This is causing insurers to update their risk assessments and premium calculations. As a result, homeowners in newly designated high-risk areas are seeing significant increases in their insurance costs. Additionally, insurers may withdraw from certain markets altogether, leaving homeowners in those regions struggling to find affordable coverage for their homes.
In response to the escalating risks posed by climate change, many insurers are withdrawing completely from high-risk areas. Regions that are frequently affected by wildfires, hurricanes, and floods are becoming too costly for insurers to cover. For example, in Florida, several insurers have pulled out of the market after facing substantial losses from repeated hurricanes. This withdrawal leaves homeowners in these areas struggling to find affordable coverage or any coverage at all.
For those insurers that remain in high-risk areas, the costs of providing coverage are rising sharply. To manage the financial risk associated with more frequent and severe natural disasters, insurers are increasing premiums and deductibles. Homeowners in states like Louisiana and Texas for example - which are prone to hurricanes and flooding - have seen their insurance costs soar.
Premiums that once seemed manageable have now become a significant financial burden for many families. Higher deductibles mean that homeowners must pay more out-of-pocket before their insurance coverage kicks in, which brings another layer of financial strain.
Insurers are also implementing stricter underwriting criteria to mitigate their exposure to climate-related risks. This means that it has become more challenging for homeowners in high-risk areas to qualify for coverage. Insurers are conducting more detailed inspections and requiring additional information about a property's vulnerability to natural disasters. For example, homes in wildfire-prone regions may need to meet specific fire-resistant building codes and have defensible space around the property to qualify for insurance. These stricter criteria are designed to reduce the likelihood of large payouts, but they also make it harder for homeowners to secure the insurance they need.
Another way insurers are responding to climate change is by introducing exclusions for specific types of damage in their policies. Flooding and wildfire damage, in particular, are often excluded from standard homeowners insurance policies in high-risk areas. Homeowners must purchase separate policies to cover these risks. Even then, the coverage may be limited, and the premiums can be prohibitively expensive.
Thanks to global warming and increasingly intense and frequent heat waves, wildfires are becoming a big concern in the western US, particularly in states like California and Colorado. The growing risk is making it challenging for homeowners to obtain affordable insurance. In California, for example, major insurance companies like State Farm and Allstate have stopped issuing new policies altogether in certain areas. Similarly. The cost of coverage has also skyrocketed, with premiums increasing significantly as insurers attempt to manage their financial risk.
In the southeastern US, hurricanes pose a growing threat to coastal regions, particularly in states like Florida and Louisiana. Recent hurricanes, such as Hurricane Ian and Hurricane Ida, have caused billions of dollars in damage, leading to substantial increases in insurance premiums. Many insurers have also canceled policies or withdrawn from these high-risk markets entirely. For example, Farmers Insurance pulled out of Florida in 2023, leaving homeowners scrambling for alternative coverage.
Government intervention in the US, such as the National Flood Insurance Program (NFIP), helps fill this gap by offering flood insurance to homeowners who can’t obtain it through private insurers - although the premiums can be quite high. State-specific plans, like Florida's Citizens Property Insurance Corporation, also provide coverage but often come with higher costs and limited coverage options.
Global warming is making storms more intense and changing precipitation patterns which means that flooding is a growing concern across the US. Changes in floodplain maps have led to low-risk areas being defined as high-risk, leading to increased insurance costs for many homeowners. Homeowners who previously didn’t require flood insurance are now having to seek insurance coverage, resulting in significant financial costs.
The Federal Emergency Management Agency (FEMA) and private insurers help provide flood coverage. As is the case for flooding damage caused by a hurricane FEMA's NFIP is the primary source of flood insurance for most homeowners, but private insurers are gradually entering the market, offering more options albeit at higher costs.
In the UK, rising sea levels and heavier rainfall due to climate change have significantly increased the risk of flooding. Coastal areas and regions near rivers are particularly vulnerable. For example, parts of Yorkshire and Cumbria have experienced severe floods in recent years, resulting in extensive property damage and higher insurance claims. As is the case in the US, the increased flood risk has led to changes in flood risk assessments and mapping, placing more homes in high-risk zones and driving up insurance premiums.
To address these challenges, the UK government has implemented the Flood Re scheme. This government-backed initiative helps make flood insurance more affordable for homeowners in high-risk areas. Flood Re works by allowing insurers to pass on the flood risk part of a home insurance policy to the government-run scheme for a fixed price. While this scheme has helped maintain insurance availability, premiums for flood-prone properties have still risen.
Prolonged dry spells in the summer months and heatwaves in the UK have led to a rise in subsidence claims. Subsidence occurs when the ground beneath a building shifts or sinks, causing structural damage. Homes built on clay-rich soils are particularly susceptible, as the soil shrinks and cracks during dry periods. Southern England, in particular, has seen a significant increase in subsidence issues due to hotter and drier summers.
The rising number of subsidence claims has resulted in higher insurance premiums for affected homeowners. Insurers are now more stringent in their assessments, often requiring detailed property surveys before issuing policies.
The UK has also seen an increase in the frequency and severity of storms, leading to a surge in insurance claims for wind and water damage. Storms like Dudley, Eunice, and Franklin have caused significant property damage in recent years. Common types of storm damage covered by homeowners insurance include roof damage, broken windows, and water damage from heavy rainfall.
With the impacts of climate change worsening and more unpredictable and extreme weather events threatening our homes, it can feel like there’s not much we can do and that it’s out of our control. However, there are proactive steps that homeowners can take to manage the rising costs of homeowners insurance and protect their property from climate-related damage:
It’s important for homeowners to fully understand their insurance policy and know exactly what it covers. It's also crucial to be aware of the climate-related risks their home might face. This ensures their property is properly protected:
Effective communication with insurance providers can help homeowners get the best coverage and rates.
By implementing these mitigation and adaptation strategies, homeowners can better protect their properties from the impacts of climate change and manage rising insurance costs. Staying proactive and informed is key to navigating the evolving landscape of homeowners insurance and ensuring comprehensive coverage in the face of increasing environmental risks.
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