Climate Change and Homeowner’s Insurance Challenges
Climate change is cranking up the risk of wildfires and other major disasters. Insurance companies are seeing their payouts climb because of these events, and it’s getting harder to predict future losses. This situation is making it tough for folks in risky areas to get or pay for home insurance.
As the risks and costs keep growing, insurance premiums will likely go up, making coverage less affordable. If state regulators are slow to approve these higher premiums, insurance companies might just pull out of high-risk areas, shrinking the availability of insurance.
CBO Analysis of the Problem
The Congressional Budget Office (CBO) recently took a look at what’s happening in the property insurance market. They considered different insurance products and policy ideas to help homeowners and renters.
The CBO’s main points:
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Climate Change’s Role: Rising temperatures on land and in the oceans, along with droughts, rising sea levels, and heavy rainfall, all linked to climate change, are making natural disasters like wildfires, hurricanes, and floods more likely.
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Uncertainty and Coverage: With all the unknowns that come with climate change, insurance companies might limit the coverage they offer for risks that are hard to put a number on or when regulators restrict their ability to adjust prices based on risk.
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Underinsurance: Many households might not have enough insurance for natural disasters. This can happen because they don’t fully grasp the risks or aren’t sure what kind of help the government will offer after a disaster.
Potential Solutions
The CBO also explored a range of potential solutions:
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Subsidies: Providing subsidies based on income could make insurance more affordable for families with low and moderate incomes. This approach has the benefit of helping those who need it most and encouraging other policyholders to take steps to reduce their potential losses. However, it could be challenging to control the costs and put the program into action.
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Expanding Availability: Another approach is to expand access to insurance. States could ease up on regulations that limit insurers’ ability to set prices based on risk. The federal government could step in as a reinsurer or insurer for catastrophic risks, similar to how it handles flood insurance, and take on more of the financial burden of disasters.
Descriptive caption: Image illustrating the impact of climate change on homes and insurance. This picture helps visualize the report’s topic, linking climate risks to property insurance.
