Concentration of CO2 in the Atmosphere

Are We Headed for an Insurance Crash?

Some analysts believe a widespread real estate insurance crash could be in the making.

George Harvey

If a house is sufficiently threatened by natural disaster, insurance underwriters calculate that it is too likely to lose them money, and they will not insure it. Without insurance, it will almost certainly not get a mortgage, and that makes it unlikely ever to be sold. The real estate market is highly dependent on insurance.

On May 15, The New York Times published an interview, “The Possible Collapse of the U.S. Home Insurance System,” in which Christopher Flavelle gave details of his investigation into potential effects of the increasingly dangerous weather brought about by climate change. His conclusion is ominous (

Areas along the coast are being battered by frequent hurricanes. We can see the intense damage from the flooding and storms that have increased considerably during the last few years. But there are aspects to storm damage in such areas that seem hidden, and so they are not noticed much.

For example, do we actually notice that the sea level is rising? Probably not. But sea levels in the Gulf of Mexico have been rising at a rate far in excess of what had been expected, according to an article at CleanTechnica ( That article, “A Surge in Sea Level Rise Threatens Southern States,” says, “Sea levels in the Gulf of Mexico have risen by six inches or more in the past 10 years a far faster rate of rise than anyone in the scientific community expected. Most oceanographers expected that amount of change would not happen until the end of this century and even then, only if the Earth was on a trajectory to surpass 2º C above pre-industrial levels.”

Over the last two decades, scientists have seen clearly that rising, warmer seas add to the damage of powerful hurricanes. Flavelle comments on the fact that storms have been costing insurance companies so much money that there are coastal states where the companies cannot make a living.

However, it is not just coastal areas that have a weather problem. Flavelle pointed out, “[I]n fact, if you think of a map of the country, there was no state between Pennsylvania and the Dakotas that didn’t lose money on homeowner’s insurance last year. So…huge parts of the middle of the U.S. have become unprofitable for homeowner’s insurance. This market is starting to buckle under the cost of climate change.”

Various intense and damaging storms are causing problems in the central areas of the country. Tornadoes are increasing and can happen in much of the country, including New England. Derechos, which have straight, in-line winds along a front, can do similar damage. They, too, are dangerous and we see more of them than ever before.

CBS News produced a program on the issue, “Homes in parts of the U.S. are ‘essentially uninsurable’ due to rising climate change risks.” It says analysis from the First Street Foundation shows that there are alarming implications for homeowners in many parts of the U.S. “About 35.6 million properties – one-quarter of all U.S. real estate – face increasing insurance prices and reduced coverage due to high climate risks.” The problem is made worse by the fact that the values of endangered real estate are being reduced by the same risk factors that drive the cost of insurance up (

Furthermore, risks go far beyond storms. We continue to see powerful, numerous wildfires. This is doubly bad, because entire communities can burn down, leaving little to recover. The example of Lahaina, Hawaii comes to mind ( At one time, Lahaina was the capital of Hawaii, and historic buildings were among those that burned. Many people from the fire-prone states have moved east because of the increasing dangers from wildfires.

Many of the disasters caused by climate change are geographically widespread. This has put sudden, intense demands onto insurance companies, leaving them with no choice but to increase rates dramatically or insuring homes in the worst areas. Without insurance, large numbers of homes lose a lot of their value, even if they were not damaged. Local real estate markets can collapse under such circumstances.

The loss of value in uninsurable real estate is not limited to damage and destruction by storms and other disasters. In the case of loss due to lack of insurance, the loss can come because of the mere possibility of damage. A house and property can be undamaged and look just the same as they have in the past, but because the area is riskier than it was twenty years ago, the value of the home falls. And without any possibility of insurance, the value can fall badly.

A storm does not have to happen to be devastating to a homeowner. To bring down property values, it just has to be likely.

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