NYT Op-Ed: Homeowners' Insurance is the Canary in the Climate Coal Mine

From today's New York Times, by a UPenn Wharton School Professor --

Your Homeowners’ Insurance Bill Is the Canary in the Climate Coal Mine
Excerpts, emphasizing economics, coastal condo living et cetera:

If you don’t think you’ve been affected by global warming, take a closer look at your last homeowners’ insurance bill: The average cost of coverage has reached $1,900 a year nationwide, but it’s $4,000 a year in New Orleans and about $5,000 a year in Miami, according to Policygenius, an online insurance marketplace. And that is pocket change compared with the impact climate change may ultimately have on the value of your home.
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Climate risk is driving insurer decisions like never before.
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Across the United States, premiums jumped 12 percent from 2021 to 2022, according to Policygenius estimates, and they are expected to continue to rise.

Even with higher premiums, unpredictable losses are wreaking havoc on insurers’ bottom lines. Ten insurers have gone belly up in Florida in just the last two years. And in many cases, insurers are pulling back in risky areas, leaving state-backed insurance plans holding the bag. Both private and government-backed insurers are undercapitalized for dealing with the potentially massive disasters we could be facing in coming years. This shortfall foreshadows more premium increases, which will drag down house prices. And losses will not be borne by those residing in higher-risk areas only; they will be borne by policyholders everywhere.

Thus far, housing markets have largely managed to ignore these potential exposures. Over the last three years, home prices are up around 37 percent nationwide. They are up even more in parts of Florida and the Southwest that are predicted to suffer significant impacts from a warming climate. Take Phoenix, which, by 2060, is forecast to endure 132 days each year with temperatures of over 100 degrees. Last summer, the water level in Lake Mead, a critical source of water for 25 million people in the Southwest, reached its lowest level since the reservoir was filled in 1937. And living in Phoenix requires energy-intensive amenities like air conditioning, which worsen these consequences. Yet Phoenix home prices are up 53 percent since January 2020.

Why are so many home buyers putting themselves in harm’s way? The simplest explanation is that they are choosing to focus on the short-term benefits of sunny weather rather than the longer-term problems.
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Climate risks are difficult to forecast and are increasingly correlated: From insurers’ perspectives, it’s “Everything Everywhere All at Once,” with heightened risks of floods, droughts, wildfires and more. To have the necessary buffer to pay out claims after catastrophic losses, insurers will need more reserves and more reinsurance, and they will pass those costs on to policyholders in the form of higher premiums. That includes policyholders who live well out of harm’s way. The year after the Marshall fire destroyed over 1,000 homes and caused over $2 billion in damage near Boulder, Colo., average premiums rose over 17 percent statewide.

While insurers can choose to stop offering insurance, the homeowners and governments they leave behind will still have to deal with the risks. And as the costs go up, more households may decide to reduce their coverage or may choose to go without insurance entirely. It’s estimated that only one-third of households in flood zones have flood insurance — with many risking financial ruin if the “big one” hits.

Then there’s the housing market. There is $30 trillion in housing equity in the United States, and the most important source of wealth for most American households is the home. If homeowners have to pay more in premiums, can’t obtain insurance at all or can’t find buyers because of fears about climate change, property values can erode or collapse even without a hurricane making landfall. This dynamic has already started: My research partner Philip Mulder and I found that low-lying housing markets in coastal Florida began to price sea level risk in the 2010s, leading to a roughly 5 percent discount relative to houses in similar, but less exposed, communities. Climate risks are disproportionately borne by lower-income groups and racial minorities, who may already live in riskier areas, are less likely to be insured, and may lack access to resources for pre-disaster preparation or post-disaster repairs.
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Private insurers are sending a warning signal about heightened climate risks that homeowners and potential buyers need to receive. Insurers’ decisions are leaving households with fewer choices, less protection, and more financial distress. Homeowners should understand the potential hazards and find the right insurance policy or policies to protect them from harm. And they need to be aware that the costs of living in harm’s way are going to rise in coming years.

An era of complacency is ending. If you decide to buy that condo where you can hear the ocean’s waves, realize that you are likely to pay more for that privilege — one way or the other.

The full article appears at https://www.nytimes.com/2023/05/07/opinion/climate-change-homeowners-insurance-housing-market.html

I call this profound, and yes today, correct.

A dozen years ago the cost of home insurance never factored into my financial considerations when looking at homes. Now it does.

Yup.

Sadly, long term thinking isn't something most people do. We don't save enough for retirement (or at all), we want to keep driving gas guzzling SUVs, use plastic bags for everything, continue to use coal although it pollutes the air and - keep on eating and drinking too much because tomorrow we will die and leave it to our kids and grandkids will fix all this because we're too busy taking a dirt nap.

Climate change is real and we have to start rethinking a lot of things because no one's figured out space travel where we can settle on Mars or anywhere else (which we'd fuck up because we didn't learn a damned thing on this planet). For HOAs, this will mean reconsidering solar panels, native plants instead of lawns (at least you wouldn't have to mow it! Edible front yards are also an option), formal recycling programs (if your city/county won't do it, maybe you can set up something with your local trash collector), using rainbarrells) and so on.

If we can encourage earth friendly tactics, we might save money as well as the air, water and land, and that might drive down insurance costs (especially master insurance for HOAS) Earth friendly landscaping might even free up more money for reserves and hold the line on some operating costs.

I own that, like nearly everyone, I have had a much better lifestyle because of the subdivisions, townhomes and condominiums that developers have built. I worked in the defense industry, and I buy-and-hold stocks, so I stand on no moral high ground when it comes to corporate America's sins. But somehow, I hope I am still allowed to opine that I find the greed of developers and their accomplices in city hall and at the state level nauseating. Now that the harm is being felt on a larger scale, perhaps things will change.

Or not. People in the United States seem programmed to believe there is no such thing as 'having enough.' It seems a rare bird these days who gets that keeping up with the Jones's tends towards Sysiphean behavior. It is short term "fun" at best.

Slices of heaven still exist in the United States, where extremists do not act extreme around neighbors and might actually lend a helping hand to a neighbor in need, with all politics set aside. I would name these places but I do not want the secret to get out too quickly. The developers will figure things out on their own soon enough.

For a break from the Joneses: Tom Hanks's new movie "A Man Called Otto," takes a shot at developers and also makes townhome living with a bona fide HOA look just fine; wholesome even.