Global Climate Change and How it Affects your Insurance

Just a couple of decades ago, the idea of climate change was limited to discussions between experts, scientific scholars, and weather enthusiasts. Now the concept of global climate change is at the forefront of political debates, classroom studies, and even family dinners.

Awareness of the issue has certainly grown. Most Americans have heard about the dire warnings that the United Nations Intergovernmental Panel on Climate Change (IPCC) Report gave in October 2018. Let’s take a closer look at those warnings and how they relate not just to the future of our planet but also to something very tangible and practical: your insurance coverage.

Temperature Rise Basics

The United Nations panel on global warming found that if the global temperature rises by 1.5°C, humans will face unprecedented climate-related risks and weather events. In addition, it reported that the world has already warmed by 1°C since the middle of the 19th century, and could reach 1.5°C before the middle of this century at the current rate of warming. The 91 lead authors and 133 contributing authors, from 40 countries, assessed 30,000 scientific papers and made over 42,000 comments during the review process. They estimate that the Earth is on track for a 3-4°C temperature rise.

What Does This Mean? 

While climate changes will vary depending upon your location, in general there will be more extreme weather phenomena as the temperature rises. There will be more frequent and intense heat waves, more damaging storms, a rise in overall sea levels, a depletion of arctic ice mass, and millions of changes to ecosystems around the globe. Within this reporting, were strong recommendations for global leadership, businesses and even individuals, on how to mitigate these disastrous changes.

How do these warnings relate to your insurance? 

There are a myriad of ways that these storms, rise in sea water, and potential catastrophic events will impact your insurance. Here are just a few:

High Risk Costs 

Homes in high risk areas may be too costly to insure, making home insurance unaffordable for many. Americans would then need to rely on government insurance programs that are already strained

Insurance Denials

High risk areas where catastrophic events occur regularly will cause insurance companies to increasingly be reluctant insure homes in certain areas.

Balancing Costs 

Insurance companies generally use models of what events have occurred in the past in an area to pinpoint risk factors for the future. If an area is prone to risks such as coastal flooding, fires, or storms, then the company will typically insure more homes in a low-risk area to offset the potential costs.

Premium Increases

As weather phenomena continue, and scientific evidence builds, costs will go up. Increase in the intensity of storms means that claims go up. As claims go up so will the premiums.\

Unaffordable Insurance Risk 

Insurance companies buy their own insurance for large disasters. This is known as “reinsurance.” With these global climate change predictions, insurance companies will be at a greater risk, causing reinsurance companies to charge more for their services. That cost will likely be passed down to the insurance customers, leading to, again, unaffordable insurance.

How to Get Premium Discounts 

In order to encourage homeowners to buy in lower risk areas or make accommodations for potential risks, insurance companies will most likely be offering more discounts on premiums to property owners who take steps to minimize damage from a natural disaster. For example, homes that retrofit for stronger hurricanes, or homeowners who build further from the coast may be offered incentives for avoiding risks caused by the consequences of global climate change.

Due to global climate change, homes may no longer be labeled as being in a disaster-prone area as the environmental changes could impact areas that were once considered “safe.” Do you have questions about how climate change may impact your insurance in the years ahead? Call Phil Richard Insurance at 978-774-4338 or visit our website.