With Extreme Weather, Home Insurance Will Cost More. If You Can Get It.
Premiums are already rising. And now insurers are looking at whether homeowners are keeping up the maintenance on, say, roofs.
Wildfires in California and Oregon. Hurricanes that wreak havoc from the Gulf Coast up to the Northeast. Hail in the Midwest that is so big and falls with such intensity that it punctures roofs.
Extreme weather is causing billions of dollars in property damage with a greater frequency than even a few years ago. In response, insurance companies are increasingly rethinking which homes to cover and at what price.
In some cases, they’re raising premiums two to five times in a year. In others, they’re denying coverage because they deem it too risky to have a lot of properties in an area that is prone to wildfires (like Los Angeles County).
Insurers are also putting more of the onus on homeowners to keep up the maintenance on, say, roofs in areas that are regularly hit by hurricanes. They may also be asking if homeowners in fire-prone areas have done anything to mitigate fire damage. And people looking to buy a coastal home should make sure it is insurable at all.
“The severity, frequency and size of the storms is really what’s changed in the last two to three years,” said Jean Sullivan, vice president of insurance sales at Precisely, a data analytics company that does geographic risk assessments.
“Insurance companies are finding out that the models they built just three to five years ago are not holding up in the last two to three years,” she said. “That’s concerning to them, and that’s caused more pressure on the reinsurance companies that insure their risk, and more pressure on the homeowner.”
As a result, many homeowners in climate-ravaged areas are starting to have to deal with the availability and affordability of insurance, along with stricter terms and conditions, said Ross Buchmueller, president chief executive of PURE Insurance, which focuses on high-net-worth clients.
“If you want to buy a house in the canyons of Beverly Hills, you should check that it’s insurable,” Mr. Buchmueller said. “It’s not about someone couldn’t get insurance at a fair price. It’s you can’t get insurance at all in certain places.”
NFP, a large brokerage, felt fortunate to be able to retain a celebrity client’s insurance even with the price doubling, said Brett Woodward, the firm’s managing director, who runs the personal risk practice.
“He was paying $400,000 a year for his insurance last year,” Mr. Woodward said. “It was renewed in July at $850,000. We were happy he still had coverage.”
The changes in the market have opened up opportunities for newer companies to provide coverage — though at a steep price.
“We just charged someone $1.9 million for insurance in California with a $1 million deductible,” said Charles Williamson, chief executive of Vault, an insurance company that was started in 2017 and serves wealthy people in most East Coast states, California, Colorado and Texas. “There’s almost no capacity in Beverly Hills, because every insurance company is full up and Beverly Hills is very vulnerable to wildfire.”
But even some wealthier homeowners are asking if insurance, or at least insurance for the full value of their homes, is worth paying year after year.
Some California clients of Bessemer Trust, a wealth management firm, have put in their own wildfire-protection systems instead of paying high premiums on insurance with limited coverage, said Gary Pasternack, head of insurance advisory at Bessemer.
“It may be more economical for someone to spend money on loss-mitigation strategies than to pay so much in premium for policies that have large deductibles and poor coverage,” he said. “It’s playing out in California now in a significant way. People have to make a decision: Do I want to continue to buy insurance, or should I be making more of an investment in protecting my property against losses, particularly fire losses in the West?”
A built-in system that sprays foam on a house to protect it from catching fire can cost $4 to $6 a square foot. It’s even more expensive on multiple-building estates in fire-prone areas, Mr. Pasternack said. Some homeowners have bought foam systems mounted on all-terrain vehicles and given caretakers the responsibility of spraying down the buildings.
Of course, that system won’t work if there is an evacuation order. Still, Mr. Pasternack said, homeowners get creative when a policy that had an $80,000 annual premium a few years ago is now unavailable in the regular market or costs five times that — or, in one case he saw, 10 times more.
Short of foam-spraying A.T.V.s, there are things regular homeowners can do to protect their homes. A well-maintained roof can stand up better to hurricanes, heavy winds, and rain or hail. And insurers are often using aerial photography to see it.
“Even though you have trees hanging over your house, they’re using aerial imagery to look at your roof,” Ms. Sullivan of Precisely said. “Are there shingles missing? Does it have moss growing on it? Are there signs of it failing?”
Climate has changed the way many insurers are looking at claims, particularly if a roof may have been older than its useful life.
“Take a wood or cedar shake roof,” Mr. Woodward said. “Let’s say it’s supposed to last 40 years. An insurer may start knocking off coverage at the 20-year mark.”
Location has also become an issue. Insurers are using local climate data to be more precise in how they insure a property, Ms. Sullivan said.
“Five, 10 years ago, if your property was in a certain ZIP code, that was good enough for them,” she said. “They need to know more now. They need to know where that home is located on the property. Is there a flood zone? How close is it to a river? The cost for the same property at two ends of a street could be different because of the elevation.”
Some people who bought homes in unfamiliar areas or have fewer choices in an overheated market have found after the fact that the properties, particularly older, coastal homes, were uninsurable through traditional means. To get coverage, they have to turn to what is called the surplus market, where the rates set by the state insurance regulator do not apply. An insurer in that market can charge whatever it wants.
“Wealthy individuals are buying homes quickly in places like Florida because of a lack of inventory, and before they would have bought a home that was better built for the same price,” Mr. Woodward said. “Then we have a 30- to 60-day close, and we have to get them coverage. A lot of people didn’t envision the cost of that insurance when they made the purchase.”
Insurance on an older $1 million South Florida home that was not built to the region’s codes, which have protections against wind and rain damage, could be $40,000, compared with $3,000 for a similar home elsewhere, Mr. Woodward said. Getting that old home up to code so the premiums would come down, including new windows, doors and roof, can cost $100,000 or more, he said.
Mr. Buchmueller said a friend was building a home in Florida with an eye toward protecting it from extreme weather. The home isn’t in South Florida, so the building codes are looser, but the friend asked that the roof be strapped on and meet the more stringent code.
“The contractor told him that required 29,000 more roof fasteners,” Mr. Buchmueller said. “It’s not a small measure to add the South Florida code to a home.”
Whether it’s a starter home or a $5 million beach house, some owners are more mindful than others about taking care of their house.
“Some people treat their home like it’s their home,” Mr. Woodward said. “But some people treat their home like it’s just a place where they live. And I don’t care what you’re spending.”
Extreme weather may force more homeowners to take better care of their houses — or risk losing their insurance.