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A comprehensive report on homeowners insurance released by the Treasury Department this week outlined the cost of climate challenges on homeowners. Notably, the report found that homeowners in areas with the highest risk of perils paid 82% more for homeowners insurance than those in ZIP codes with the lowest climate risks and had nonrenewal rates that were 80% higher than those inlow-risk areas.
Treasury noted that it released the report during a time when firefighters in Los Angeles are continuing to battle the impacts of a devastating slate of wildfires.
The report illustrates that “homeowners insurance is becoming more costly and harder to procure for millions of Americans as the costs of climate-related events pose growing challenges to insurers and their customers alike,” the department said. It was also released alongside the “most comprehensive data on homeowners insurance in history,” Treasury added.
The department said its report “is based on the most comprehensive and granular snapshot of the homeowners insurance market to date,” and covers more than 330 insurers and over 246 million homeowners insurance policies that are “aggregated to the ZIP Code level from 2018 to 2022,” with an annual average of 49.3 million policies.
As insurance costs rise nationwide, significant variation across regions and ZIP codes showed that average premiums on a per-policy basis rose 8.7% faster than the annual rate of inflation from 2018 to 2022. But some consumers still faced “substantially larger premium increases than the national average,” particularly for those assessed to live in areas with higher amounts of climate risk.
Those communities pay far more due to being prone to impacts from “substantial weather events,” the department said.
“From 2018 to 2022, consumers living in the 20% of ZIP codes with the highest expected annual losses to buildings from climate-related perils paid $2,321 in premiums on average, 82% more than those in the 20% lowest climate-risk ZIP codes.”
Some reports have shown that the increase in higher premiums have led to higher rates of nonrenewal, and the report corroborates this by saying that those consumers living within those higher-risk ZIP codes “faced higher policy nonrenewal rates, with average nonrenewal rates about 80 percent higher than those in the lowest risk ZIP codes.” This also lends credence to the idea of reduced availability of insurance policies in higher-risk areas, the department said.
Risks stemming from climate change are also making it harder for insurance companies to operate, the report added, stemming from higher costs in these higher-risk areas.
“Treasury’s analysis comes at a time of devastating tragedy, loss of life, and destruction from the wildfires in the Los Angeles area,” said Treasury Secretary Janet Yellen in a statement. “While it’s far from clear what the exact financial costs of this disaster will be, it is a stark reminder of the impacts of the growing magnitude of natural disasters on the U.S. economy.”
Yellen added that the situation in Los Angeles “does not stand alone as evidence of this impact, with other climate-related events leading to challenges for Americans in finding affordable insurance coverage – from severe storms in the Great Plains to hurricanes in the Southeast.”
Risks identified in the report underscore a threat to the “long-term prosperity of American families,” she said.
