Meet Mark Gongloff, a Bloomberg Opinion editor and columnist covering climate change. He previously worked for Fortune.com, the Huffington Post and the Wall Street Journal and he’s worried.
Why is Mark losing sleep? In one word:
Insurance...
Or more accurately, lack of it.
You can read why here:
Mark was speaking with David Burt, who predicted the 2008 financial crisis. Burt now warns of a new housing crisis driven by climate change. He argues that US homeowners are underinsured for wildfire and flood risks by $28.7 billion annually, putting 17 million homes at risk of $1.2 trillion in value destruction. This isn't a global financial crisis, but it will feel like the Great Recession in affected communities like Sanibel Island, Lahaina or Ruidoso. Personally, living overlooking the Atlantic Ocean, this editorial struck home.
The problem is that insurance premiums don’t reflect the growing risk of climate disasters, like stronger storms, higher tides or longer storm seasons.
In 2023, the US saw a record 28 weather disasters costing $1 billion or more:
Source: Climate.gov
In fact, in recent years, the United States has seen a significant uptick in the frequency and intensity of these events. From 1980 to 2024, the nation experienced 383 events. That makes the annual average of such events from 1980 to 2023, 8.5, but this number has risen sharply in the last five years, averaging 20.4 events per year a more than 3X increase! Insurers are raising premiums, but not fast or high enough to cover the risks, partly due to political and market pressures.
2024 is on track to at least match 2023’s record, with 15 such events so far — a tally that doesn’t yet include Hurricane Helene, which might have caused $100 billion in damage not to mention Hurricane Debbie which hit home in Florida, which was still reeling from the effects of Hurricane Ian.
According to Burk and others, the solution is to price climate risk accurately, but this could lead to sudden price adjustments in the housing market. Balancing accurate pricing with economic stability is crucial as climate change continues to impact homeowners.
Another downside of accurate pricing will be more and more people willing to “chance it” and go uninsured. The result of this will be slower rebuilding and greater community decay as a result of weather events.
We’re seeing this already. Gongloff notes “Burt’s estimate may actually be on the conservative side. The climate-risk research firm First Street Foundation last year estimated that 39 million US homes — nearly half of all single-family homes in the country — are underinsured against natural disasters, including 6.8 million relying on state-backed insurers of last resort (1).”
Gongloff goes into detail about why this situation exists and we, very much, recommend reading his article. It includes the usual cast of characters – homeowners who think insurance is already too high, insurance companies who are leaving states because they feel they can’t make a reasonable profit, state insurers of last resort on the edge of insolvency, politicians and government organizations like the National Flood Insurance Program who just don’t know what to do.
Gongloff’s advice:
(1) Look in the mirror (which the author did metaphorically as he sipped a scotch on his balcony overlooking the quaint New England Harbor, contemplating the coming winter storms (2) )
(2) Make some compromises on the climate change debate, acknowledging the fiscal realities
And
(3) Get ready for higher rates.
There is one bit of bright news for anyone affected by a Federal Disaster – the IRS Casualty Disaster Program (Form 4684). It’s there to help after disasters strike. It can be used even if you have insurance. And if you don’t have enough Insurance, it can help you even more. In some cases, it can recover thousands or tens of thousands of dollars regardless of your insurance situation.
Here's how it would work out for a typical homeowner in Ruidoso, NM after the fires:
If the homeowner had no insurance, they would get back $30K.
When disaster strikes, we’ll be there to help you recover your fair share. We’re Disaster Relief. Let us know if we can help.
(1) A state-backed insurer of last resort is a state-run insurance policy for homeowners that private insurance companies won't insure. These policies are intended to be the final option for property owners in high-risk areas to get the coverage they need to meet their loan requirements
(2) No, that’s not really me. While I do sometimes sit with a scotch and stare out over our quaint new England Harbor, and think “Yikes”, this guy is waaay better looking than me as my wife will attest!
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again, first rate work, Rich.