Insurance and Safety Issues Linked to Climate Change and Housing

Many older Americans face major challenges due to the cost and availability of housing. In A Place to Call Home, Orion Bell outlined these economic challenges related to housing, and the growth in homelessness and housing insecurity. His article is emblematic of the ASA Economic Security Advisory Council’s focus on the crucial economic issues of housing and well-being in aging.

The second in a three-part series (read article 1 here) on housing costs, climate and economic insecurity, the article below details climate-related factors such as insurance and safety that older Americans should consider when deciding where to live. Buying insurance involves many choices and technical information, even without considering climate. The Consumer Financial Protection Bureau (CFPB) offers resources to assist consumers in the purchase of homeowner’s insurance.

Insurance Issues Linked to Climate Some climate events lead to major asset losses. A story in Scientific American on Hurricane Ian reported that uninsured property losses were estimated to be between $10 and $17 billion. The people most likely to be uninsured were those who couldn’t afford insurance, and then couldn’t afford to rebuild.

Homeowner’s insurance is expensive, particularly in areas with major climate risk, such as barrier islands, flood plains and fire zones. Homeowners may find themselves in multiple insurance scenarios, including having great insurance, having not quite enough insurance, having no insurance, having homeowner’s insurance but not flood insurance, or having insurance but not receiving a satisfactory settlement. Note that lenders require insurance, but if there is no mortgage, there is no mandate to have insurance.

Insurance has gotten quite expensive and lower income homeowners may not be able to afford it. Some homeowners decide to take a chance if insurance is not required.

‘Some homeowners decide to take a chance if insurance is not required.’

A November 2023 article from CNBC reviews challenges with insurance that Americans currently face in areas with significant climate risk. This article leads with a homeowner in Colorado Springs whose annual homeowner’s insurance premium jumped from $3,767 to $8,361 in one year. For retirees on tight budgets, such dramatic price increases are daunting and may be untenable.

Homeowners in areas that experience major weather events face insurance companies leaving the market, raising costs, going bankrupt, and limiting insurance availability. Florida’s current insurance challenges include fraud linked to repairs that magnify the impact of storm damage.

Some states have established companies of last resort to provide at least some coverage in situations that can’t be covered on the private market (these companies function similarly to assigned risk pools in auto insurance). In Florida, Citizens Insurance was established in 2002 by the legislature to enable citizens who could not get market-based insurance to obtain some homeowners’ coverage. Also, in 2022 and 2023 the Florida legislature passed legislation designed to ease the situation.

It should be noted that insurance does not always pay what is expected in a settlement. This may be due to policy provisions or the insurance company’s judgement. Ultimately, this means many homeowners do not get enough money to cover their actual losses.

Lessons Learned from Prior Events

I have experienced substantial damage to my Florida home in two major weather events, one of which was a hailstorm on April 1, 2015. That hailstorm stripped the leaves off all of the trees where I live and made holes in many houses and cars. Wow! I learned hail damages everything. It totally destroyed two houses in my neighborhood and damaged many others.

What happened to me and my neighbors made it clear that insurance is very, very important and it does not always work well. I was fortunate to have insurance from a very high quality provider and they responded quickly, paid for my damage, and checked in to make sure that the payment covered the work and that I had a reliable contractor. I was proud of them. But I was very saddened when I learned that my some of neighbors who had insurance from low-cost carriers got almost nothing reimbursed. 

Lesson I could hardly believe: Some people were getting treated very badly by their insurance carriers. Lesson learned: Be careful about how and from whom you buy insurance.

There are complexities when it comes to which type of coverage is needed. Hurricanes are one type of climate risk. Hurricane damage can come from wind damage or flooding. Homeowners’ insurance would cover the wind damage, but not flooding, for which separate flood insurance is required. Flood insurance information is provided by FEMA. Structures that flood also can suffer wind damage, and there may be many structures that suffer both, leaving the building owner caught between two insurers.

Safety and the Need for Temporary Arrangements Due to Weather Events

Safety is of prime concern when evacuating during weather events, particularly for people with disabilities and other limitations. Evacuation may be mandatory or recommended, and orders may come several days before an event or with hardly any time to get out. For hurricanes, particularly large storms, there can be information several days before, enabling property owners to prepare to minimize damage and evacuate. However, recently storms have increased in intensity rapidly and changed direction so that evacuation orders may come with very short notice.

‘Be careful about how and from whom you buy insurance.’

Evacuation options are different depending upon whether 1) the individual has a car, can drive and manage the situation, 2) the individual has a car but needs help driving and/or managing; 3) the individual has no car; or 4) there is no feasible evacuation route and/or place to go. Evacuation needs to be completed in advance of the event and evacuation by car depends upon having passable roads and a place to land. Options for evacuation sites include hotels or motels, other people’s homes, and centers set up in schools and other public places.

Evacuation is never easy but it can be difficult to impossible for people with mobility, sight or hearing limitations and/or dementia. My county in Florida has evacuation sites designed for people with disabilities.

Evacuation often incurs additional costs some retirees cannot afford, including the costs of unexpected travel and temporary shelter. Those who choose to live in areas with considerable climate risk should consider the feasibility and implications of evacuation.

After a major storm, it may take months to repair and rebuild damaged housing, and some may never be rebuilt. This is challenging for everyone, but much more challenging for people who have disabilities, who may need special accommodations or supports at home to live safely and independently.

Keep an eye out for Part 3 in our series of articles on housing costs and choices and climate issues.

Anna M. Rappaport, FSA, is an actuary, consultant, author and speaker, and a past-president of the Society of Actuaries. She has served on several government advisory committees. Most recently, in 2010 she was appointed to the Department of Labor’s ERISA (Employee Retirement Income Security Act of 1974) Advisory Council.

Photo credit: Shutterstock/Loes Kieboom