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'Risks are going up' for natural disasters: How to ensure your home, and finances, are protected

"There's no two ways about it: The insurers are charging more when they perceive the risk to be higher."

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The effects of climate change are wreaking havoc across the country, from the February storm that knocked out power in Texas and adjacent states to a California fire season that's already consumed more acreage than in either of the prior two years. From 2011 to 2020, the total tab for cleaning up all disasters that cost at least $1 billion was up 170% from the decade before, according to data from the National Oceanic and Atmospheric Administration.

More and more homeowners are having to ask themselves: If something serious did happen to their homes, would they have enough insurance?

"Insurers are in the business, and have been forever, of measuring their policyholders' risks and assessing prices," says Peter Kochenburger, deputy director of the Insurance Law Center at the University of Connecticut School of Law. "Well, those risks are going up."

Insurance 'helps to make the private-sector economy possible'

Insurance is much more than a service you pay for in case something bad happens to your home or personal property, Kochenburger says: "It helps to make the private-sector economy possible."

"Most of us could not own a home if we didn't have insurance, because we simply couldn't bear the financial risk," he adds. "It also makes it possible for businesses to do business. So it does a lot of things that are not simply one person's interest."

That relationship is falling out of balance, as heightened risk drives more insurers to raise prices. "There's no two ways about it: The insurers are charging more when they perceive the risk to be higher," says Amy Bach, executive director at United Policyholders, a consumer advocacy organization in San Francisco. "So people on a limited budget are definitely needing to make some hard decisions."

Those hard decisions can include modifying their coverage to get a lower premium — which, in turn, often limits the amount an insurer will pay in case of a natural disaster.

'Educate yourself' and mitigate your risks

Setting aside the giant questions about global warming and the continuing functioning of society, there are two big steps that you can take right now to help protect yourself from financial calamity, Bach says.

The first: "Educate yourself on your local risks, and what the most current thinking is about the home improvements you can make to be resilient to those risks. And then be as proactive as you can in making those home improvements."

Those improvements can be as straightforward as putting a new roof on your house or as involved as retrofitting physical structures attached to your home, like carports, and making sure that windows and doors are specifically rated to handle storm-level winds.

The price tag for those fixes can be steep, but many states, including Alabama and South Carolina, offer limited assistance for financing them. Plus, having your home officially retrofitted against disasters can earn you discounts on your homeowners insurance. Alabama, for example, has statutes recognizing three different levels of fortification — bronze, silver, and gold — that can get you discounts, but you must have retrofitted your house using a state grant to qualify, according to Alabama's Department of Insurance.

Competition for those grants is fierce, however. Neither Alabama nor South Carolina is accepting new applicants at present, due to lack of funding. In South Carolina, the application window for 2021 grants opened on July 1 at 8 a.m. and maxed out after 90 minutes, according to the state's Department of Insurance.

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These programs are intended to help people who know without a doubt that they live in risk-prone areas. But Kochenburger points out that for many people, the boundaries of what's considered "risk prone" just keep getting bigger.

"It's one thing to build a house in an area that I know is risky," Kochenburger says, "but [what if] I've always lived in an area when it was not risky, but now there's a lot more risk?"

For now, some of those costs will be subsidized by those whose homes aren't at risk. Property insurers mitigate the cost of insuring their highest-risk customers by making everyone pay more. "That means everyone in the state is paying more," Kochenburger says. "Some people are going to be paying more than they otherwise would, and some will be paying less. That doesn't mean it's a bad thing to do. But it has its own costs."

In the long term, however, insurers may get more discriminating about subsidizing high-risk homes. For example, many are now refusing to cover vast swaths of threatened properties in Florida, driving a surge of policyholders to the state-backed "insurer of last resort." If that trend continues, the state may not be able to afford the high cost of insuring millions of homeowners against ever-increasing natural disasters. That could mean significant jumps in premiums, or even an inability to get coverage altogether — factors that high-risk homeowners might consider as reasons for a potential move.

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'Be a savvy shopper'

If you're already worn out thinking about all the things you need to research and consider, brace yourself, because there's more. "The reality is that homeowners really need just to pay more attention to their insurance than they did in the past," Bach says. "It used to be a no-brainer for people."

As such, it's incumbent on homeowners to be their own best advocates. That starts by knowing what kind of coverage insurance companies are offering, and at what prices.

"Be a savvy shopper, because not all insurance companies' offers are the same, and not all of them look at you the same way," Bach says. "Don't just shop for price, look at the quality of the coverage. Ask good questions when you're shopping, and don't stop shopping until you find an affordable, reasonably decent, quality policy."

Here are the essential questions to ask, Bach says:

  • Is my dwelling covered? Make sure your policy covers the rebuild of your home. "People are attached to their stuff, because stuff is stuff," she says. But "most disaster victims will tell you, 'Yeah, it's crushing that I lost all my stuff, but, you know, at least, I'm going to be able to replace my home.' That's generally the most important thing."
  • If I can't afford full coverage, what parts of my home could I live without? For people who can't afford full coverage, Bach recommends scaling back how much of your stuff is covered. Think about skipping coverage for outdoor structures like sheds or pools, she says. "If you know you can get by without replacing those things, then you can save some money on your insurance. But you can't get by without a roof over your head."
  • Does my policy cover temporary housing? One thing that people often don't think about is paying for a temporary place to live if a disaster strikes their home. "That's a biggie," Bach says. "When you lose the use of your home, how long can you count on your insurance company to cover your temporary rent? How many months? And how much per month will they cover?"

Ultimately, the deciding factor for much you pay will be the risk profile of wherever you call home.

"You have to be realistic about the conditions where you live," Bach says. "You certainly have a right to live wherever you want, but from an insurance company's perspective, they have a right to charge you what they think they need to charge you."

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