Page 59 - BusinessWest February 17, 2025

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Climate
That said, the report noted that cli- mate risk is reshaping real-estate fun- damentals, transforming the U.S. hous- ing market through two forces: soaring insurance costs and shifting consumer preferences.
Specifically, First Street estimates that unrestricted risk-based insurance pricing would drive a 29.4% increase in average premiums by 2055 — com- prising a 18.4% correction for current underpricing and an 11% increase from growing climate risks.
Meanwhile, by 2055, 70,026 neigh- borhoods (84% of all census tracts) may experience some form of negative property-value impacts from climate
risk, totaling $1.47 trillion in net prop- erty-value losses due to insurance pres- sures and shifting consumer demand.
These trends reach well beyond the U.S. According to a report from the Canadian Broadcasting Co., the Insur- ance Bureau of Canada recently report- ed that, as a result of events like that country’s Jasper wildfire and flooding in Eastern Canada, 2024 set a record for insurance payouts in Canada, at $8.55 billion.
This will inevitably lead insurers to raise rates as they try to manage the broader risk. But as premiums rise and some regions become uninsurable, it could have a cascading effect that could
lead to a financial crisis, Gary Yohe, Huffington Foundation professor emeri- tus of Economics and Environment at Wesleyan University in Connecticut, told the CBC.
“What’s happening now is that the really, really dark [climate events] are just catastrophic and all in one place, happening at the same time,” Yohe said, adding that, in terms of insurance, “it creates a societal problem, not just an individual problem.” BW
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Homeowners insurance is impor- tant to U.S. consumers, the economy, and the financial system. For many Americans, their home is their largest financial asset, and the cost and avail- ability of adequate homeowners’ insur- ance has a direct impact on housing expenses and the value of homes. The cost and availability of insurance can also have significant consequences for local governments whose tax bases rely on property values.
Moreover, homes are increasingly vulnerable to natural disasters. The National Oceanic and Atmospheric Administration reported that, from 2018 to 2022, 84 billion-dollar disas- ters (excluding floods) cost more than $609 billion, and costs for such disas- ters have continued to rise since then.
“What’s happening now is that the really, really dark [climate events] are just catastrophic and all in one place, happening at the same time.”
Last month’s report considers homeowners’ insurance costs in the context of nine types of climate-relat- ed perils, explicitly excluding flood- ing (which is not typically covered
by homeowners’ insurance policies) and non-climate-related disasters like earthquakes.
Insurance in the U.S. is regulated at the state level. In March 2024,
FIO announced it was engaging in a first-of-its-kind partnership with the National Assoc. of Insurance Com- missioners on behalf of state insur- ance regulators to collect data on the homeowners’ insurance market. The NAIC shared a subset of the collected data with FIO, with regular meetings between both to collaborate, review, and assess the data.
This latest report and the data-col- lection effort complements the efforts that states and local communities are undertaking to understand and address market challenges from the higher costs of climate-related disas- ters and other factors weighing on homeowners’ insurance markets.
Weather or Not
A new study by First Street Foun- dation called “Property Prices in Peril” analyzes the effects of climate change on real estate, noting at the outset that residential real estate, val- ued at around $50 trillion, is the bed- rock of the U.S. economy, nearly dou- ble the country’s $27.4 trillion GDP.
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