Changing climate phenomena, such as rising sea levels, increased temperatures and heat waves and droughts, have grave financial implications for homeowners. Modern homeowners have faced increasingly intense hurricanes and wildfires that occur more frequently.
In the future, homeowners across the coasts may face increasing risks from rising sea levels. And some states are more at risk than others. Using data from the Union of Concerned Scientists (UCS), we found that three states — Louisiana, New Jersey and Delaware — have housing stocks with an outsized vulnerability to rising sea levels and chronic flooding.
Rising sea levels and other changing climate phenomena have insurance implications, too. As recent hurricane and wildfire disasters show, major natural disasters can result in state-wide rate increases to insurance premiums as high as 8% on average.
States with the largest share of at-risk homes in the near -future: Louisiana, New Jersey and Delaware
Homes in certain states, such as Florida and California, are more vulnerable to rising sea levels and chronic flooding — mostly because those states have long coastlines and large populations. But some states have a high number of vulnerable homes as a share of the overall share housing stock in that state. Louisiana, New Jersey and Delaware are predicted to have the largest share of at-risk homes, when the projected vulnerable homes to chronic flooding in 2030 — calculated by the UCS — is divided by total number housing units in a state, per the American Community Survey.
With a housing stock at more than 2 million, Louisiana has the biggest proportion of flooding risks by far, at about 1.3%. The UCS estimates more than 26,300 homes in Louisiana will be chronically flooded due to rising sea levels by 2030.
New Jersey has about 3.6 million housing units, and the UCS estimates that more than 26,600 properties, or 0.7% of total housing units by our calculations, could be chronically flooded by 2030.
There are only about 432,000 homes in Delaware, but 0.6% of them (about 2,500 homes) are vulnerable to rising sea levels and may experience chronic flooding by 2030. This makes it the third most vulnerable state.
The share of at-risk homes in all other states is at 0.3% or less, which makes Louisiana, New Jersey and Delaware the clear standouts. With 0.3% or 0.2% of their housing stocks at risk, the next most vulnerable states are Maryland, South Carolina, Florida, Connecticut, New Hampshire and Alabama.
Insurance implications of climate change in the present: Rising rates for consumers
If climate change results in increasingly severe weather events, insurance companies will inevitably incur higher losses and pass down those costs to policyholders in the form of higher premiums. In the case of rising sea levels, consumers in flood-prone areas will likely face rising flood insurance premiums.
But climate volatility has already notably impacted insurance rates in past years through destructive hurricanes and violent wildfires. Recent episodes, such as Hurricane Harvey in Texas and the 2017 California wildfire season, illustrate how home insurance rates can spike after insurers pay an abnormally high value of claims in any given year.
Hurricane Harvey and home insurance rates
Adjusted for inflation, Hurricane Harvey in 2017 was the second costliest hurricane in American history after Hurricane Katrina. The state of Texas absorbed the brunt of the damage, and with many homeowners lacking flood insurance, only $30 billion of an estimated $100 billion in total economic damage was insured, according to Aon, a risk consultancy.
Although home insurance policies do not cover flood damage, they do cover severe wind and hail damage, and 2018 rate changes for Texas' top home insurance policies reflected the severity of the event. Among the top 10 insurers in the state by market share, approved rate increases in 2018 were 8.1% in the wake of Harvey, by far the biggest increase in the last five years.
|Home insurance group||Texas market share||2014 rate change||2015 rate change||2016 rate change||2017 rate change||2018 rate change|
|State Farm Group||20.8%||9.7%||0.5%||-6.1%||3.5%||0%|
|Allstate Insurance Group||12.7%||4.2%||3.5%||4.2%||3.5%||4.4%|
|Farmers Insurance Group||10.8%||-4.4%||7.1%||14.1%||8.9%||8.5%|
|Liberty Mutual Group||8%||13.5%||9.7%||7.1%||7.2%||6.7%|
|Nationwide Corporation Group||2.9%||5.3%||5.1%||10.7%||0.7%||5.9%|
|Texas Farm Bureau Mutual Group||2.6%||14.5%||0%||7.9%||-0.3%||7.7%|
|Chubb Ltd. Group||2.1%||4.5%||0.3%||4.2%||8%||14.8%|
|Top 10 groups combined||75.7%||6.3%||3.2%||2.7%||4.5%||8.1%|
Rate changes varied among insurers, with USAA, Progressive and Chubb seeing the biggest rate increases in 2018. Some insurers, such as Allstate and Nationwide, saw much more modest increases, while State Farm's were flat.
What can homeowners vulnerable to flooding do to protect their property?
Homeowners who live in flood-prone areas should look into purchasing a flood insurance policy, as homeowners insurance does not cover flood damage. Although flood insurance policies are backed by the federal government's National Flood Insurance Program (NFIP), buyers can usually work with their home insurance provider to purchase a policy. There is also a growing private flood insurance market.
However, residents in areas particularly vulnerable to flooding could end up paying thousands of dollars each year for a policy — a hefty expense that will likely become even more prohibitive if the frequency and severity of floods increases.
When facing the long-term risk of continuous flooding, homeowners should possibly look into moving to a new location. Some state and local governments offer relocation programs, which use federal and local government funds to buy out flood-prone properties at market price, allowing residents to get fair value for their homes and move to a less-vulnerable area. Interested homeowners should research their local government to see if a home buyout program is offered in their area.
California wildfires and home insurance rates
Property damage from the 2017 California wildfires were estimated to result in an economic loss of $13 billion and insured loss of $11 billion, according to Aon. These record numbers have since been surpassed by the 2018 wildfires, but the insurance effects can be seen in approved 2018 rate increases. Unlike flood damage, fire damage is covered by most homeowners insurance policies, and the substantial losses from the 2017 fires resulted in rate increases of 5.9% when combining the top 10 insurance groups in the state.
|Home insurance group||California market share||2014 rate change||2015 rate change||2016 rate change||2017 rate change||2018 rate change|
|State Farm Group||17.4%||-3%||0%||-5.4%||0%||6.9%|
|Farmers Insurance Group||16.1%||2.6%||6.6%||5.6%||0%||6.3%|
|CSAA Insurance Group||6.6%||0%||0%||0%||-5.8%||6.9%|
|Auto Club Enterprises Insurance Group||6.4%||0%||6.9%||6.9%||0%||0%|
|Liberty Mutual Group||6.2%||0%||0%||1.5%||5.9%||4%|
|Allstate Insurance Group||6.2%||0%||0%||-14.6%||0.5%||0.5%|
|Mercury General Group||4.9%||11.9%||0%||0%||6.9%||8.4%|
|Nationwide Corporation Group||4.4%||5.7%||0%||0.8%||4.7%||7.2%|
|Top 10 groups combined||76.4%||-0.2%||1.9%||-0.2%||0.7%||5.9%|
USAA had the most outstanding rate increase at 16% in 2018, but many of the top 10 insurers in California increased rates by 6% to 8%.
Under Proposition 103, insurance companies in California require prior approval by the state regulator before they can raise home insurance rates. Moreover, under this regulation, any increases to rates will have to reflect longer-term trends of increasing losses rather than one-off events. However, major insurance losses in a given year can still contribute to that longer-term trend, and rate raises among the top insurers in 2018 in California were the largest in recent years.
Percentages for vulnerable housing units were calculated by dividing at-risk homes in a state, as projected by the Union of Concerned Scientists (UCS), to the state's total housing units, taken from the U.S. Census Bureau. At-risk homes are projected for the year 2030 in a high-risk scenario in which there is expected to be a global sea level rise of over six feet by 2100.
Rate changes for the 10 biggest insurance companies in a Texas and California were taken from S&P Global Market Intelligence.