1 Photo
About 480 people in the East Hampton zip code 11963 live on “exposed land,” which is generally 6 feet below sea level. This “selected sea level scenario” cites a 13 percent risk of at least one flood over 6 feet taking place between today and 2050 as warming oceans and melting glaciers and ice sheets raise global sea levels.
Across Suffolk County, about 55,000 people live on so-called “exposed land,” according to data from the nonprofit Climate Central, which monitors climate change. Would you buy a house in such a zone?
“Many cities around the world are experiencing the impacts of climate change through increasing rainfall amounts, particularly during extreme events,” said Kevin Reed, an associate provost for climate and sustainability at Stony Brook University’s School of Marine and Atmospheric Sciences in a statement. “When you combine this with aging infrastructure systems, the challenge becomes urgent.”
A climate-risk score for homeowners insurance is a tool that estimates a property’s likelihood of damage from climate-related events, including but not limited to extreme weather. Such scores are intended to help homebuyers and sellers make better-informed decisions about purchasing, selling or protecting a property based on how weather events may impact it. As insurance rates attempt to predict future costs, more severe weather events are simultaneously increasing “loss costs” for homeowners insurance. Subsequently, so-called risk-management actions by carriers often follow and include such items as changes in price, coverage, underwriting practices and reinsurance. It’s no wonder some insurers are completely withdrawing from designated high-risk zones, which can be as large as counties and/or states or as narrow as a zip code or street. Some coverage decisions are now made on a house-by-house basis. Inflation alone is not the primary cause behind higher insurance rates. Several other drivers are contributing to this phenomenon.
“These scores change over time, and a higher score doesn’t necessarily mean a property is a bad investment,” said David Clausen, the CEO of Coastal Insurance in Rocky Point. “Distance to tidal water, year built, prior claims, condition of roof, number of stories, height above sea-level, flood-zone proximity, as well as geo-specific data each go into forming these models.”
You can check your own home for a free risk assessment at freehomerisk.com. Entering the Montauk zip code delivered 19 of 35 at-risk triggers, including wildfire, drought, flood, flying debris, storm surges and sinkholes. Entering one’s complete address will provide a more precise risk assessment.
The two key factors that determine a premium are frequency and severity. Frequency is how often losses occur. Severity notes the financial amount of such losses. Should one or both of these factors increase, rates will correspondingly rise to cover the losses. Like many other types of insurance, home policy rates experience a “delayed effect” because policy premiums are fixed for the coverage term. Insurers often must use information that is obsolete by the time a claim is paid. Nevertheless, insurers typically furnish coverage using cost estimates for labor and materials valid at the time the policy is written. Premium changes occur at renewal. While you may not yet have recently received a premium increase, it may happen at your policy’s renewal time.
“As data collection and modeling technologies have improved, it’s given rise to individual risk-model scoring,” Clausen noted. “Rather than Suffolk County or a Hamptons zip code location, areas like south of Route 27 can be an eligibility category.”
But it’s not just the eastern end of Long Island and other coastal areas that are experiencing “premium shock.” Many homeowners across the country are seeing rate increases. Homeowners, however, can also use the same or similar data. Understanding your climate risk score and taking appropriate steps may help contain a rising premium while often better protecting your home from Mother Nature’s hazards.
“The cold, hard fact is that extreme winter weather caused $3.4 billion in insured losses in 2023,” said Tammy Nichols Schwartz, a chartered property casualty underwriter and senior director of data and analytics at Guidewire, a property-and-casualty platform used by insurers. “Insurers and homeowners must better leverage the data available to them to assess their vulnerabilities and take action to mitigate these risks.”
More than 80 percent of potential homebuyers now consider climate risks when choosing a home, with concerns such as wildfires, floods and extreme heat, according to new data from real estate marketplace Zillow.
National Association of Insurance Commissioners data published by the Insurance Information Institute shows nationwide home insurance losses of about $39 billion in 2009. By 2019, that number had increased to over $68 billion, more than 74 percent higher. But all is not lost.
“When you can financially measure the scale of risk, you can do something about it,” said John Rogers, the chief innovation officer at CoreLogic, a real estate data-analytics firm.
Understanding a home’s risk vulnerability also plays an important role in financial planning as the cost of insuring a property against climate-related risks can dramatically influence monthly payments and affordability. Some areas are considering a fee increase to discourage development in high-risk locations and making insurance discounts available for those taking risk-reduction measures.
Going forward in planning, there is likely going to be a greater emphasis on how we view risk management, what we value and how we protect it. Annual reviews with insurance providers should become more common, and homeowners should not emphasize price over coverage when policy shopping.
Policies can come with stipulations and exclusions. When it comes to insurance, there is no substitute for thoroughly understanding what one’s policy does and does not cover. While homeowners will undoubtedly build back smarter, to tackle a 20 percent cost increase, consider that a home with a rebuild cost of $5 million today would likely require an additional $1 million to rebuild. This shortfall can include other coverage areas, such as contents coverage for household belongings and additional living expenses. If a policy is a few years old, expect to pay about 20 to 30 percent more to rebuild due to increased labor and material costs, plus price volatility due to lingering supply-chain concerns.
Common-sense upgrades include incorporating stormproof or fire-resistant materials, raising houses in flood zones, and replacing aging roofs. Nonrenewals due to roof wear are common.
“Flood vents, breakaway walls and impact resistant hurricane windows are classic examples of mitigation tactics that can decrease the chance that a home is damaged in a catastrophic event,” Clausen said. “These often come with hefty discounts on insurance premiums and can certainly affect whether a home is eligible for coverage.”
According to data from real estate firm Redfin, the total value of U.S. homes facing low risk of extreme heat is up 7 percent year over year to $17.7 trillion. The total value of homes facing high risk of extreme heat is up 6.3 percent to $29.7 trillion. Similarly, the total value of homes facing low flood risk is up 6.7 percent year over year to $40.2 trillion. The total value of homes facing high flood risk is up 6 percent to $7.2 trillion. The total value of homes facing low fire risk is up 6.6 percent year over year to $39 trillion. The total value of homes facing high fire risk is up 6.4 percent to $8.4 trillion. This is the first time since 2010 that low-risk homes across all three categories — heat, flood and fire — rose in value faster than high-risk homes.
“The fact that this is happening across risk types — and thus, across the country — is some of the best evidence we have that climate change is impacting people’s homebuying decisions,” said Redfin senior economist Elijah de la Campa in a statement. The report also notes that older Americans are more likely than younger Americans to buy homes in places with significant climate risk and that nearly one in seven home shoppers say a concern for natural disasters or climate risks in their area is a reason they are likely to move in the next year.
“Climate change is not just about polar bears and melting icebergs anymore,” said Senator Sheldon Whitehouse, a Rhode Island Democrat and chairman of the Senate Budget Committee, late last year. “It’s also about climate-flation bleeding family budgets. Our new data reveal that the failure to deal with climate change is also affecting whether families can get homeowners insurance, which threatens their ability to get a mortgage, which spells trouble for property values in climate-exposed communities across the country. If Republicans are serious about staving off such an economic catastrophe, they must take their hands out of Big Oil’s pockets and take climate change seriously.”
“Young people will inherit a warmer, more extreme climate,” said Stony Brook’s Reed. “We owe it to our current and future students to help them begin to know how to confront the choices they will have to make because of climate change’s far-reaching impact.”
