Climate Change Hits Individual Wallets - Hard

 Flooding in Florida

Wildfire damage in California

Climate Change Hits Individual Wallets - Hard

Thank you, insurance industry

Developers in the Phoenix area have been stopped dead in their building tracks as Arizona truly addresses the climate change-imposed multistate Colorado basin water reallocation. Within months of major flood damage in the state, in late 2022, Florida mandated that homeowners be required to have flood insurance. Only 19% did. But Florida is also one of the 21 states where lenders and insurers are not required to notify homeowners of this insurance mandate. Can’t build. Water restrictions are going to get more severe. And then there is this insurance thang.

As I have mentioned in recent blogs, even at the new higher rates, getting a mortgage in areas where there are wildfires, flooding or coastal erosion is becoming increasingly difficult… and is often dependent on getting that full insurance coverage. Catch-22. In some markets, the 30-year mortgage is a thing of the past. Lenders fear that within that time, who knows how many borrowers will simply walk away from severely damaged properties where rebuilding makes no sense. Borrowers in such regions consider themselves lucky if they can get even a 10- or 15-year mortgage.

Florida is a sad case in point. “A combination of factors including stronger storms fueled by climate change, a strained insurance industry and ineffective state regulations has placed millions of low-income Florida residents at risk of a major insurance coverage gap... The crisis in Florida's insurance industry has escalated with the shutdown of seven companies since February last year, leaving countless individuals vulnerable to the devastating impacts of flooding.

“The urgency to address this issue is underscored by the fact that more than one-third of Florida properties are at risk of severe flooding over the next 30 years… Hurricane Ian, which struck last September as a catastrophic Category 4 storm, resulted in over 150 deaths and caused damage exceeding $100 billion, making it the costliest storm in the state's history…

“Dr. Rick Knabb, former director of the National Hurricane Center, emphasized that even a few inches of water can cause significant damage... ‘It only takes a couple of inches of water in your home to cause tens of thousands of dollars in damage. Just think what it does to the carpet. If it gets up to the level of the electrical outlets, what that does to your electrical system, Knabb said… [In Florida, S]ellers do not have to say whether the property is in a flood zone, if they are required to have flood insurance, or if the home has flooded before…

“Lower-income residents, who are disproportionately affected by this lack of information, often find it challenging to afford flood insurance, especially as premiums continue to rise.” CBS News, June 1st. And flood insurance rates are just beginning to skyrocket well past affordability for so many homeowners. Folks are losing their homes.

California on the other coast has its own share of issues. It used to be earthquake insurance that carried the cost burden, but today, as the big melt cascades mountain water past dam capacity, flooding areas that have not seen water for a decade or more, the rarity of flood insurance has appeared. Exacerbating that reality are the exorbitant reconstruction costs associated with her wildfires. Combine the two and you have landslides and subsidence of record proportions. Further compounding the matter is the plethora of mega-expensive homes. And yes, California faces coastal erosion in some of the priciest communities, from Malibu to San Clemente.

So, it comes as no surprise that property insurance companies are shutting down in states and regions that face the most catastrophic risks of climate change-related natural disasters. In an editorial entitled California can’t ignore State Farm’s wake-up call on climate change costs, the June 2nd Los Angeles Times spells out this trend: “It’s bad news that California’s largest home insurance provider, State Farm, decided it’s too risky and expensive to sell new policies in the state. It’s even worse news that State Farm simply publicized what other insurance companies have been doing quietly for several years by refusing to renew policies and pulling out of communities at risk for wildfires.

“While there are still more than 100 insurers writing new policies for property owners in the state, State Farm makes up 21% of the market. The company’s decision is worrisome because it shows the continued instability in the market for homeowners insurance, which is essential for people to get a mortgage and to protect their assets… It’s another sign that climate change is driving up the already high cost of living in California and lawmakers need to be far more aggressive in building safer communities.

“In a statement, State Farm said its decision was influenced by the increased construction costs of rebuilding in California, the growing risk of catastrophes such as wildfires and, as a result, the rising cost of reinsurance (essentially insurance for insurance companies). The company said it had to curtail new policies in order to ‘improve the company’s financial strength.’” All this in a state with a severe housing shortage. A consumer-oriented insurance commissioner, Ricardo Lara, is fighting vigorously to keep insurance rates manageable, but that has hit a sour note with insurance carriers. The above editorial continues: “State and local officials and residents …have to manage the rising costs of insuring property owners and rebuilding after disasters.

“But, California also has to stop making the same poor choices that put so many people in harm’s way. This year, lawmakers began considering Assembly Bill 68, which would make it faster and easier to build new housing within existing communities, near jobs, schools and shopping centers. Local governments could only allow new construction outside already developed areas if they demonstrate there is no other way to meet housing targets.

“This is the kind of major change that California leaders need to embrace to manage the effects of climate change. It makes no sense to keep building homes in high fire-risk areas when future residents may not be able to get or afford insurance. Because of its complexity and significance, AB 68 was put on pause and will return for consideration in January.” Common sense needs to reenter the building, and those climate change deniers and marginalizers should be assessed the additional costs we all face because of their rearguard action to halt climate change containment.

I’m Peter Dekom, and nature truly does not care that we don’t want to accept the cost and lifestyle burdens of ignoring the hard dollar and life-threatening ravages of climate change disasters.