Climate change isn’t an issue to avoid in the future anymore. It’s a present-day reality that creates intensified natural disasters on a more frequent schedule. People rely on their insurance companies to fund how they rebuild or replace their belongings after events like wildfires or hurricanes, but that’s becoming increasingly challenging for insurers.
Insurance companies are responding to climate change in ways that concern every policyholder. These are the most notable things to remember as you watch your weather forecast and consider how to protect your belongings.
1. Scaling Back Policies
Although climate change affects people worldwide, certain areas are more likely to experience extreme weather. The U.S. experienced 119 natural disasters in 2022, leading to billions of dollars in insurance claims. Companies are struggling to keep up with the financial demand, so they’re scaling back the areas they cover.
State Farm recently announced they’re no longer providing property and home insurance in California, citing the increase in wildfire catastrophe exposure. Farmers Insurance made the same move in Florida to avoid increased insurance claims after more powerful hurricanes. If insurance companies don’t have to pay for as many claims in areas more prone to disasters, they face less financial risk.
2. Increasing Their Rates
As companies pull out of regions and states, they’re also raising policy rates. It’s becoming apparent that climate change means more financial risk for companies covering thousands of homeowners experiencing natural disasters annually.
In response, rates are increasing for new and existing policyholders. The prices of homeowner insurance premiums more than doubled since 2001, rising from $536 annually to $1,311 in 2020. The more substantial rates are supposed to make it easier for insurance companies to pay for claims. However, the costs of financial disasters continue to outpace what those companies make with their traditional business models.
Policyholders will see a 9% increase in their coverage prices in 2023, which won’t be the last time their budget needs adjusting. Given how replacement and rebuilding costs rose 55% between 2019 and 2022, rates will continue to increase to meet that financial demand.
3. Depending on State Coverage
Insurance companies won’t renew insurance plans in many declared disaster areas, so they encourage homeowners to get coverage through Fair Access to Insurance Requirements (FAIR) plans. These coverage policies are only available in 33 states and Washington D.C., but they’re another option for people losing coverage by private insurance.
FAIR plans are specifically for qualifying high-risk properties. Although the policies only have basic coverage and may not provide the same financial protection as premium insurance plans, they’re better for homeowners than being left with nothing after hurricanes, wildfires, earthquakes or winter storms.
4. Giving Special Discounts
Some insurance providers give special discounts to incentivize consumers as their rates rise. Insurance companies currently work with 10 states to provide wildfire insurance policy discounts to consumers who install fire-proofing mechanisms like sprinkler systems. Other efforts can include installing fire-resistant roofing or exterior wall materials.
While these discounts won’t erase the total insurance premium cost increases, they could make it easier for some homeowners to continue affording their policies. The property upgrades also make residences safer.
5. Communicating Ways to Fortify Homes
It’s crucial to empower consumers with information so they can protect themselves. Insurance companies are joining this effort by sending helpful guidance in newsletters, email campaigns and mailed pamphlets. The knowledge gives homeowners tips to fortify their homes with resources like:
- Hurricane shutters
- Fire-resistant materials
- Reinforced garage doors
- Raised home foundations
- Flood openings in basements or crawl spaces
These efforts won’t entirely prevent natural disaster damage but can reduce the severity. It would make life easier for homeowners after weather events and keep insurance companies from incurring claim costs they can’t afford.
6. Reconsidering Business Models
Current insurance models don’t account for the frequency of annual natural disasters. Billion-dollar climate events accounted for 75% of insurance costs between 1980 and 2000. That number rose to 85% in 2022, costing companies $2.475 trillion that year alone.
New catastrophe models could make risk portfolios more accurate. Policy coverage could include detailed climate data down to street-specific locations instead of generalized regional data. It would create more informed pricing and precise business models for insurance providers as they consider what they’re doing about climate change.
Insurance companies rarely provide public access to their business models and financial dealings. Private organizations don’t have the same obligation to release data as public ones. However, they may become more vocal about these changes as time goes on. Consumers want to know how their policy investments will protect them. The answers come from each insurer’s corporate model, so companies may begin revealing their updates as solutions prove effective.
7. May Offer Innovative Products
Policies aren’t the only things insurance companies can offer consumers. Providers also offer innovative products that incentivize new and returning consumers.
New policies could cover weather events due to their range of intensity rather than the property’s value. It gives insurance companies more financial room to assist consumers dealing with broader intensified weather systems. Instead of only offering coverage up to a specific damage price point, companies could assist policyholders more flexibly.
Organizations also want to sell discounted services outside their insurance claim response plans. Consumers could access weather-resistant property upgrades through their insurance provider after that provider partners with the brands producing the upgrade materials or services.
People not installing upgrades due to the higher costs may better protect their property if the discounts make it affordable. Better protected properties mean fewer costly claims for insurance providers. It’s another way everyone can benefit while preparing for disasters as the world works towards healing solutions for the planet.
Fight Climate Change With New Solutions
If you’re wondering what insurance companies are doing about climate change, you can expect to find numerous response initiatives. Insurers are raising prices to continue covering people, making room for alternative coverage options in high-risk areas and providing consumers with more information to protect themselves proactively. Every effort counts as climate change intensifies.
