What Climate Risks Could Impact Your Insurance Claims?

The effects of climate change become more apparent by the year. While coastal areas bear the brunt of the planet’s transition, you can see the ramifications farther inland. One of the most widespread consequences of this global phenomenon is insurance costs.

How Does Climate Change Affect Insurance Claims?

Due to climate change, insurance claims from natural disasters have increased, so insurers have had to increase payouts and take more losses to meet client agreements. A Munich Re analysis said natural disasters annually cause over $100 billion in worldwide damage. In 2022, these events caused $270 billion, and 55% of people didn’t have coverage for it.

In response, insurance companies have halted services in the most affected areas. Farmers Insurance left Florida in 2023, citing risk exposure management stemming from increased costs. Insurers have also left states like California, Washington and Louisiana.

What Climate Risks Could Impact Your Insurance Claims?

Climate change presents itself in a few different ways, so what specific climate risks could impact your insurance claims? Here are six factors to consider.

1. Hurricanes

When hurricanes arrive, you could feel an hours-long migraine due to changing weather. This natural disaster also causes financial headaches for insurance companies and clients due to the extensive damage. With rising ocean temperatures, hurricanes have become stronger and more frequent in the Atlantic Ocean and Gulf of Mexico. Overall, they’re one of the most significant impacts on insurance claims.

Hurricanes are costly insurance claims because they damage property in numerous ways. Heavy rains, strong winds, and lightning strikes devastate coastal and inland areas, causing significant financial stress. The past couple of decades have seen multibillion-dollar hurricanes, such as Katrina, which cost $125 billion before the succeeding economic fallout.

2. Floods

Flooding is one consequence of hurricanes, though it can be its own natural disaster. This aspect of climate change has worsened in coastal areas due to higher tides and water bodies overflowing. Ultimately, it could lead to an exodus from cities near the ocean due to excessive flooding, which a 2024 Nature study found will threaten up to 273,000 people by 2050.

How does climate change affect flood insurance claims? Even if you carry this coverage, you could encounter issues with your provider. For instance, a Florida insurer denied a flood claim because it classified a sunken living room floor as a basement. As climate change worsens, you could have difficulty getting claims approved.

3. Tornadoes

The warm and humid air leading to more hurricanes also produces ripe conditions for tornadoes. This weather phenomenon may only be in your area temporarily, but it can cause significant damage. Tornadoes can hit homes directly and tear up roof shingles. Then, homeowners must worry about the winds being strong enough to lift cars and trees from the ground and launch them into buildings.

Increasingly violent tornadoes have caused insurance costs to increase, considering the costly payouts. This natural disaster occurs across the Southeast and Great Plains, but insurers must be vigilant of this phenomenon nationwide. Homeowners insurance has increased by 11.3% nationally since 2023, straining wallets in every state. With a 23.3% increase, Texas had the highest rate change in homeowners insurance.

4. Wildfires

While severe storms are prominent in much of America, it’s essential to consider the opposite end of the weather spectrum. Wildfire season starts in late spring and lasts until mid-fall on the West Coast, threatening forests and homes. Climate change worsens the threat of wildfires by making the air drier and warmer. Reduced precipitation also exacerbates the flames that overtake trees and houses.

How does climate change affect insurance claims with wildfires? States such as California allow special enrollment for natural disasters if exceptional circumstances occur on or near a plan selection. Like Florida, West Coast states need help keeping insurers in their jurisdictions, and worsening wildfires mean claims in California could become more challenging for residents.

5. Heat Waves

Some aspects of climate change are more regional than others, but heat waves can affect you regardless of location. When temperatures reach record highs, it’s essential to drink water and understand the impact on your home. They can make the air drier and increase the risk of wildfires. Another concern is the damage to your roof and siding due to expansion and contraction, thus requiring costly repairs.

Then, you must focus on the damage heat waves can do to your interior and appliances. If record-high heat arrives, your air conditioner must work harder to keep your home comfortable. Your home insurance may cover the HVAC, but it’s worth checking the policy. Climate change will likely increase insurance claims during heat waves due to rising surface temperatures worldwide. Experts say heat waves in America have tripled since the 1960s.

6. Droughts

While climate change causes some regions to see more precipitation, others may face more droughts. The effects of droughts aren’t as evident as hurricanes, but they’re worth your attention because of the global impact. Earth’s surface temperatures are increasing the evaporation rate, so there’s less moisture available. With more droughts, there are devastating consequences for homes, farms and other land.

Droughts tie into numerous facets of insurance claims, so it’s vital to be aware of their impact. If an extensive drought occurs, the soil around your home could erode. When the soil dries, it shrinks and shifts the ground. Your home could be on the wrong side of this movement, leading to an unstable foundation and costly damage. While you may have homeowners insurance, your coverage might not cover destruction from droughts.

Monitoring Climate Change and the Effects on Insurance

How does climate change affect the future of insurance claims? Expect the process to become more complex as the planet changes. More extreme weather events will challenge insurance providers, as they must pay more money to honor their insurance claims. In response, many clients may see their premiums increase, and excessive risk and costs could cause insurers to leave individual states.