The New Geography of Risk: Insurance Trends and Their Influence on American Housing Decisions
Although people typically consider an area’s amenities, cost of living, and crime rates before deciding to live there, insurance considerations also factor into home buying. Some of these are becoming more prominent, especially in areas facing above-average climate change risks.
Additionally, households that have already dealt with natural disasters must decide if staying in the area is worth the risk or if they should move somewhere with a perceived lower threat to their future safety.
Location Risk and Home Insurance Intertwined
Insurers calculate various factors to determine how much to charge current or potential customers. Some are specific to the property, such as its age and the number of previous claims made by the owner. However, people can no longer assume insurers will agree to take them on as customers.
Information from the Joint Economic Committee revealed insurers have departed risky markets or substantially increased premium costs in those areas. One finding highlighted how home insurance premiums in Florida are four times higher than in other states due to the location’s perceived risk.
Rising reinsurance rates are among other contributing factors. Insurers buy this protection to prevent their businesses from closing if they have to give massive payouts to customers. However, the Joint Economic Committee’s coverage explained how reinsurance costs in Florida have risen by 54% since 2019, and insurance companies pass many of those extra expenses onto customers.
Those involved with this study recognized this issue is multifaceted but recommended ways to improve the situation. For example, better climate modeling tools can reveal which areas have the highest risks. If insurers and potential residents could access the data, they could become better informed about how to proceed with particular decisions.
The report also mentions community-based catastrophe insurance and parametric coverage as potential options to reduce risks for everyone involved. All parts of life involve risk, but when people must weigh things as important as where to live, reliable information is crucial for helping them reach confident decisions and adjust their budgets as necessary.
The Relationship Between Climate Risk and Housing Decisions
While learning more about housing decisions and environmental factors, you may assume there’s a gradual movement to areas with fewer climate-related risks. However, the data suggests otherwise. A 2024 study examined people moving to and from places considered flood and fire risks.
The results indicated more individuals came to those locations than left them. However, the share choosing to do so in flood-prone areas was smaller than in the previous year, suggesting a potential increased sensitivity to the threat.
Those who decide to live in a place with an above-average climate change risk may need to tweak their plans or allocate a more significant percentage of their budget to cover insurance needs. Reading the fine print of potential insurance premiums is also essential since many companies refuse to cover incidents categorized as “acts of God.”
However, the National Flood Insurance Program is a federal service that helps customers find entities providing flood insurance. Even though it may cost more, some homeowners are willing and able to bear the expense.
Another thing to consider is how insurance coverage could become nearly 10% higher after people file claims, requiring them to change their budgets accordingly. If you are in this situation or may experience it soon, consider taking proactive steps to reduce the chances of dealing with extensive non-climate-related insurance needs.
For example, leak sensors could warn you of water damage before it gets too severe, and changing your fire alarm batteries and testing the device could save you and your property from deadly and damaging blazes.
Neighborhoods’ Racial Composition Determines Relocation
The actual or perceived impact of insurance on housing choices could make people reconsider some long-held aspirations, especially if they include climate-related risks.
Many families dream of moving to beach houses, envisioning how wonderful it’d be to reside only steps away from the sand and surf. However, statistics suggest rising sea levels will affect $106 billion of coastal home investments by 2050. Then, those living in them will need to budget for repairs — and hope they can still find insurers willing to pay out.
You may assume people would be ready to move out of flood-prone areas once they experience those disasters. However, researchers who studied voluntary relocation decisions uncovered some surprising trends, such as an unwillingness to move more than 20 miles from the sites of previous floods.
The researchers examined the decisions of nearly 10,000 Americans who sold their residences between 1990 and 2017 as part of a federally managed relocation grant program. Homeowners in majority-white neighborhoods tolerated 30% higher risks before moving than those in majority-black locations. Additionally, most moved an average of only 7.4 miles, and 74% stayed within 20 miles of homes formerly affected by floods.
Some Groups Face Higher Home Insurance and Climate Risk Challenges
Research about insurance and urban planning shows how low-to-middle-income households often bear the brunt of threats associated with severe weather.
That’s due to several factors. For example, some of the nation’s most affordable homes are in less desirable areas, such as low-lying locations or land near toxic waste dumps. If someone can’t afford to buy anything better, they often determine that having a roof over their head is better, so they decide to stay put.
Additionally, as communities grow, those with more economic mobility tend to move into newer homes, which often have more safeguards against possible risks. This trend leaves more older houses available at more affordable prices. However, those residences usually lack the strategic measures or updated building codes to increase their resilience against natural disasters.
People in low-to-middle-income households may also opt for higher deductibles when choosing home insurance. Their monthly payments are lower, but they must bear more costs before insurance companies pay out on approved claims. Those parties accept the risk, hoping they will never have emergencies requiring them to use their coverage.
However, these parties may also take longer to recover from the disasters they experience, and they likely have less income to put toward threat-reduction modifications. The more government officials, nonprofit organizations, and others understand these connections, the better they can tailor their impacts to help those in need.
Analyzing the Geography of Risk and its Effect on Housing
This overview shows how anyone concerned with homeownership or insurance must consider the country’s evolving climate risk landscape and insurers’ responses. Even if some companies still offer coverage to those in locations under threat, things could change relatively soon. Assessing the ongoing changes and their potential effects will help people interpret things in the correct context.
