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The rising cost of home insurance is now one of the most prominent symptoms of climate change in the United States. Large carriers like State Farm and Allstate have withdrew from providing fire insurance in Californiaremoving thousands of owners from their accounts, and dozens of small insurance companies collapsed or fled Florida And Louisiana following recent major hurricanes.
The problem is quickly becoming a crisis that extends far beyond the country’s coastal states. This is due to another, less talked about type of disaster that wreaked havoc across states in the Midwest and Great Plains, causing billions of dollars in damage. In response, insurers have increased their premiums higher than ever and lost customers even in inland states like Iowa.
These so-called “severe convective storms” are large, powerful thunderstorms that form and disappear within hours or days, often resulting in hailstorms and tornadoes as they cross the flat expanses of the central United States. The insurance industry refers to these storms as “secondary perils” – the other technical term is “kitty cats“, a reference to the fact that they are smaller than large natural disasters or “natural cats”.
But the damage caused by these secondary perils began to pile up. Losses due to severe convective storms increased by about 9 percent every year between 1989 and 2022, according to insurance company Aon. Last year, these storms caused more than $50 billion in combined insured losses-about as much as Severe Hurricane Ian of 2022. No storm alone caused more than a few billion dollars in damage, but together they cost more than most major disasters. The scale of the losses has shaken the insurance industry.
“As insurers, our job is to predict risk,” said Matt Junge, who oversees U.S. property coverage for global insurance giant Swiss Re. “What we missed was t was that it was not one big event that had a big impact, but a series of small surprise events that built up. There’s this kind of reset where we say, “Okay, we really need to get a handle on this.” »
This steady buildup is partly because more people are moving into areas vulnerable to convective storms, increasing the damage profile of each new tornado or hail storm. The cost of rebuilding a home has increased due to inflation and shortages in the supply chain, driving up prices. But climate change can also play a role: convective storms tend to form in warm, humid and unstable weather conditions.
“We have so few observations of hailstorms and tornadoes that analyzing trends is tricky,” said Kelly Mahoney, a research scientist at the National Oceanic and Atmospheric Administration who studies severe convective storms. “But you’re dealing with storms fueled by heat and humidity, and you’re watching them develop in a world that’s hotter and wetter than ever before. It’s a tired analogy these days, but it still holds true here, with loaded dice or a stacked deck.
Climate attribution is much more difficult for these short-lived storms than for hurricanes and heat waves, Mahoney said, but it stands to reason that climate change will have some influence on how and where they develop. . Warming has already caused a geographic expansion of “Tornado Alley” expand further south and east than beforecausing more tornadoes in states like Alabama and Mississippi.
Whatever the cause, this claims trend is making business much more difficult for many insurance companies. Most vulnerable are small, regional insurers that have large groups of customers in a state or metropolitan area. When a major storm hits, these companies must pay claims on a large portion of their risk pool, which can deplete their reserves and push them into insolvency.
“The local mutuals, you have a few storms, you have a bad year, and they’re in trouble, because all their business is here and the risk is not spread,” said Glen Mulready, the insurance commissioner of Oklahoma. The state has some of the highest insurance premiums in the country, and Mulready said many insurers now refuse to write new policies for homes whose old roofs are likely to collapse during tornadoes and storms of hail.
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Even large “reinsurers,” who sell insurance to insurance companies around the world, are feeling the effects of these storms. Global reinsurance companies such as Swiss Re receive premium income from around the world, insuring earthquakes in Japan as well as hurricanes in Florida, so they are not vulnerable to collapse during local catastrophes, even major ones. But the growing trend of “attritional” losses from repeated convective storms threatens to reduce their profit margins.
“We are less concerned about the repercussions of these types of events,” said Swiss Re’s Junge, using the industry term for the costliest disasters. “What we are concerned about is only the impact on profits.”
Ed Bolt, the mayor of Shawnee, Oklahoma, has seen this impact up close. A tornado raged on the main boulevard of his city last year and destroyed over 2,000 buildings, bringing the roof down on Bolt’s own house. His insurance company paid to replace the roof, but sent him a letter a few months ago informing him that his annual premium would increase by 50 percent, to about $3,600 a year.
“The cost was going up and up a little bit, but last year we knew we would have a big hit from the tornado,” Bolt told Grist. “I’m sure it would be a pretty consistent experience across the city.”
Most states require insurers to get permission from regulators before raising their rates, presenting governments with a difficult dilemma. If they raise rates, it will make it harder for homeowners to meet their insurance payments, and they also risk lowering property values. If they keep rates low, insurers could respond by stopping writing new policies or withdrawing from the state. Mulready, the Oklahoma commissioner, said a national insurer left his market earlier this year.
However, the Midwest has not yet seen a large-scale exodus, and industry representatives say they are unlikely to pull out of the region as they have from California. But it’s a safe bet that insurers will continue to raise premiums as high as states allow them. Insurers can also increase deductibles, setting a higher minimum amount of damages before insurance kicks in. The result is a greater financial burden for homeowners in fast-growing metropolitan areas like Denver, where insurers’ exposure to storms has soared in recent years.
Perhaps the worst part of the problem is that most states have made little progress in preparing for these storms. Florida imposed a strict building code after Hurricane Andrew in 1992, and most of the state’s newer homes can withstand high winds. The central United States’ housing stock is much less resilient to tornadoes and hail, and only a few cities have required builders to fortify their homes against these hazards.
Erin Collins, senior policy advocate at the National Association of Mutual Insurance Companies, the nation’s largest consumer group, said carriers may have to continue raising rates until the nation’s housing stock become more resistant to violent storms.
“It will take community-wide toughening to reduce this loss curve,” she told Grist.
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It won’t be easy. Insurers must convince large home builders that they should build with more expensive, storm-resistant materials, and they also must encourage the millions of people in existing homes to upgrade their roofs and windows, which can cost tens of thousands of dollars. Since severe convective storms can strike such a large geographic area, it will take a long time for this mitigation work to “lower the loss curve.”
The good news is that we know how to build storm-resistant homes, and there’s evidence that building better makes a big difference, says Ian Giacomelli, senior meteorologist at the nonprofit Insurance Institute for Business and Home Safety. which advocates for stronger buildings. standards.
Giacomelli shows the town of Moore, Oklahoma, which implemented some of the highest standards for storm resilience in the country after experiencing three devastating tornadoes in two decades. Today, almost all of the city’s housing stock has roofs that can bounce back during severe hailstorms and strong seals that keep roofs from blowing off during tornadoes. Giacomelli says the nation’s current insurance crisis would likely ease if more cities followed Moore’s lead.
“I think the solutions are starting to become clearer,” he told Grist. “It’s more about whether we can have the will to do them.”
This article was originally published in Grist has https://grist.org/extreme-weather/home-insurance-midwest-climate-disasters/. Grist is an independent, nonprofit media organization dedicated to telling stories about climate solutions and a just future. Learn more about Grist.org