By Paul Roberts / For The Herald
Climate change is turning the home insurance market on its head.
Many news and trade publications including the Insurance Information Institute, The Economist, New York Times, Seattle Times and The Herald have reported on the growing cost of homeowner insurance. In areas of some states, including California, Florida and Texas, it has become harder to get insurance at all.
In Washington state, insurance rates are regulated by the state Office of Insurance Commissioner (OIC), (insurance.wa.gov). The Seattle Times reported that last year OIC approved average base rate increases of 21.7 percent for home insurance, and double digit rate increases are expected to continue year over year.
A secondary impact of climate change and raising insurance costs are higher costs for housing in general. More frequent and intense storms and fires are forcing insurers to increase premiums. These are in addition to increases in labor, materials and shortage of buildable lands, all contributing to increased housing costs. These factors combine to make housing more expensive, putting it out of reach for many, including those here in Everett and Snohomish County.
The dilemma exists for both the insurer and the insured. More frequent and intense storms and fires drive up risk and expenses. Insurance rates are based on actuarial tables reflecting historic trends. These historic data no longer reliably predict future trends. Uncertain futures create uncertainty in the market place leading to greater risk and higher costs.
There is a tension between homeowners and insurers. Homeowners understandably complain that insurance premiums are increasing and are increasingly unaffordable. Insurance companies point out that the home insurance industry does not operate on large profit margins, and these margins are shrinking due to increases in losses driven chiefly by climate change. Both perspectives are correct.
It’s easy to point a finger at big insurance companies accusing them of excess profits at the expense of homeowners. Perhaps there are some examples of that. But for the most part home insurance margins are quite small, and there is no income or profit if the insurance companies stop writing policies, withdrawing from some markets all-together.
In December 2024 New York Times economics journalist Peter Coy wrote that Aon, a global provider of risk management and insurance services, issued a report concluding the last time the industry posted a profit was 2019. Aon predicted meager returns “insufficient to support the underlying risk” for home insurance. In four of the five last years insurers failed to earn a profit at all, and in all five of those years insurers underperformed Aon’s actuarial estimates.
Washington state has been a leader in efforts responding to climate change adaptation and helping prepare homeowners to reduce risks. In 2022 then-Insurance Commissioner Mike Kreidler undertook a Climate Summit Series to educate homeowners and the public about the risks of climate change and how to reduce exposure to them.
Newly elected Insurance Commissioner Patty Kuderer is continuing these efforts. She recognizes the growing risks posed by climate change and the impact it is having on home insurance. She is working to reduce risks by preventing them from happening in the first place. That means changing land use and building codes, building in areas less vulnerable to damage from storms and fires, and using materials better suited to withstand risks such as fires and floods.
In his New York Times report, Coy said: “The only way to keep the homeowners insurance market from falling apart is to make it so rates can be affordable to homeowners and simultaneously profitable to insurers.” The way to make that happen is to change the physical reality. In the long run, stopping the warming of the planet is the solution. But that won’t provide relief anytime soon, or reduce risks or costs in today’s environment.
Adaptation strategies are essential, preparing for more frequent and damaging climate impacts from storms, floods, fires and landslides. That means hardening homes to better survive these events, not building or rebuilding them in harm’s way, improving building codes and adopting land use policies that limit building in higher risk areas.
The insurance industry, OIC and local governments can take meaningful actions to accomplish this and some of them are underway. So can homeowners. More can be done. When appropriate measures are taken to reduce risks, Insurance rates should reflect these efforts providing incentives with lower rates.
Paul Roberts is retired and lives in Everett. His career spans over five decades in infrastructure, economics and environmental policy including advising Washington cities on climate change and past chair of the Puget Sound Clean Air Agency Board of Directors.
Eco-nomics
“Eco-nomics” is a series of articles exploring issues at the intersection of climate change and economics. Climate change (global warming) is caused by greenhouse gas emissions — carbon dioxide and methane chiefly — generated by human activities, primarily burning fossil fuels and agricultural practices. Global warming poses an existential threat to the planet. Successfully responding to this threat requires urgent actions — clear plans and actionable strategies — to rapidly reduce GHG emissions and adapt to climate-influenced events.
The Eco-nomics series focuses on mitigation and adaptation strategies viewed through the twin perspectives of science and economics. Find links to the series thus far at tinyurl.com/HeraldEco-nomics.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
