Insurance companies cut back on natural disaster coverage for homes

by Zain Jaffer

According to an early September 2023 article in the Washington Post and other sources, US insurance companies have informed regulators that they either no longer plan to offer natural disaster coverage or add deductibles in some areas for home insurance plans. These insurance companies include Allstate, Berkshire Hathaway, Nationwide, American Family, and Erie, and possibly more, due to a record amount of disaster claims paid over the past few years.

Natural disasters that may lose coverage or be part of deductibles include hurricanes, wind, hail, especially in coastlines and wildfire prone areas. This list is expected to grow especially as the impacts of climate change exacerbate normal weather patterns in key areas. The recent fires in Maui last August 2023 is estimated to reach around $3.2bn in property damage.

According to international risk management firm Aon, US insurance companies paid over $295.8bn in natural disaster claims from 2020 to 2022. For the first half of 2023 alone, over $40bn had been paid for natural disaster claims, the third highest on record.

These plans to cut back or add deductibles on natural disaster coverage for home insurance plans were revealed from a National Association of Insurance Commissioners survey of at least 80% of US insurance companies.

According to the survey, Allstate mentioned that its climate risk mitigation strategy would include “limiting new business … in areas most exposed to hurricanes” and “implementing tropical cyclone and/or wind/hail deductibles or exclusions where appropriate.”

In its reply to the survey, Nationwide said it will no longer underwrite coverage for “properties within a certain distance to the coastline” because of potential hurricane damage. It also stated that “more targeted hurricane risk mitigation actions are being finalized and will start by year-end 2023.”

This plan will complicate homebuyers who need insurance as a requirement for home mortgage loans, and homeowners and buyers who live in areas at risk.

While insurance companies are for-profit businesses and are not non-profits, there is also such a thing as their social responsibility to the communities they serve. Perhaps a compromise can be reached where those areas with significantly elevated risk can require higher premiums to cover their statistical risk of likelihood.

While the costs are understandably going higher due to increased climate change effects as well as the impact of inflation in the cost of labor and construction repair materials, home insurance is a valuable asset protection mechanism for many Americans. Insurance companies need to realize they are in the public service domain as well, and shirking from that responsibility is simply un-American.

SOURCES

Home insurers cut natural disasters from policies over climate risk - The Washington Post