When the discussion around climate change comes up, most of us think about how it will affect us in the future. It is something that is happening now but will mostly impact our children and grandchildren. However, the reality is that climate change is having an effect on many people already.
Rising sea levels have changed the way people in coastal cities live, with neighborhoods in some regions already having to move due to constant flooding. Others have managed to stay in their homes, but face the challenge of dealing with floods and adverse weather events.
Even those who haven’t yet been affected by flooding may soon see an impact on their insurance premiums. Yes, rising sea levels have changed the way insurers price their services according to region, and in some cases have stopped them from offering flood insurance at all.
Here is how rising sea levels are impacting property insurance prices.
What type of insurance covers flooding?
Property and casualty insurance covers damage to your home and its contents. It includes homeowners insurance, liability insurance, pet insurance, and car insurance, among others. In particular, it will be your homeowners insurance that pays out if something destroys your home and possessions.
However, in many parts of the US, flooding is not included in private homeowners insurance. Rather, flooding is covered by the Federal Emergency Management Agency (FEMA). FEMA administers the National Flood Insurance Program (NFIP). For a long time, flooding insurance was a standard cost paid by every homeowner, but recently, FEMA changed the way they price flooding insurance.
Now, what you pay for flooding insurance depends on your risk level. For people living in coastal cities where sea levels are rapidly rising, this means a huge increase in the price of flooding insurance.
The price changes led to a decrease or minor increase for most people, but there are some who already have to pay a lot more. In fact, about 4% of Floridians now have to pay over $240 more every year.
The point of high prices
For those who have to pay much more for their flooding insurance, FEMA’s changes may have felt like a punishment. However, they came with a much grimmer message: staying in place is not sustainable in the long term. FEMA wants to encourage people living in areas which will soon be beset by floods or covered in water to move. They want to discourage people from buying homes in those high-risk areas.
The reality is that rising sea levels are going to have an impact on the ability to live in certain places, even if climate change is dealt with by world governments.
Will private insurers step up?
Private insurance is often seen as an amoral industry, but there is a lot of merit to what the industry provides. In many ways, insurance companies are there for you during your most troubling times, whether it is your property, health, or livelihood at risk. Some insurers have no scruples, but others provide excellent products that put their clients first.
That said, the insurance industry lives and dies by risk assessment. Premiums need to be priced according to risk for companies to succeed and continue to provide services. In cases where the risk is far too high to offer realistic products, they cannot simply insure you out of the goodness of their hearts.
This is why it is a federal agency that takes care of flooding. The premiums being charged by FEMA are not in place in order to make a profit, but rather to cover those who are uninsurable due to the high risk levels. This is only going to get worse, unfortunately, and at some point certain regions will no longer be insured even by FEMA.
It is not just in terms of rising sea levels that this problem has emerged. The same is true for wildfire insurance in parts of California. The more the climate changes and becomes unpredictable – or predictably dire – the more the government will have to step in, and even they may offer little in response.
Rising sea levels are already impacting many people, hitting their pockets if not their homes just yet. This is unlikely to change for the better, and will get worse in years to come.