Climate Change and Insurance — A Charlottesville Insurance Perspective

I’ve written about climate change and real estate markets quite a lot. I know the real estate side of this world very well. I tangentially know the homeowners insurance world, and read a lot about it. So I asked an old friend and insurance agent, David Jenkins with State Farm for his insight. (David can be reached here. Disclosure: they’re my agents, and I refer my clients to them. I think I get $5 Starbucks cards from them occasionally, and my wife and daughters are thankful).

One of the sources that I’ve used is Risk Factor – Find Your Property’s Climate Risks – Homepage | Risk Factor.  It has both a macro and micro level view of climate risk to property over the next 30 years.  On the macro side, you can see a national map of where the most and least risk will be for four factors – flood, fire, wind, and heat.  And on the micro side you can type in any address in the US and get specific info on that property for the same four factors.

Further, there are national reports for each factor that then delve into state info as far as the level of risk and what areas in the state have greatest risk currently and in the future.  When you search for a specific address, it also goes into the further detail for that community for flood, fire, and wind, and has interactive maps that you can use in various ways to see the risk for both that property and the surrounding area as a whole.  There is a paid section that can be accessed, although the publicly available data is very useful.

In general, the Charlottesville area is more protected than other states and other parts of Virginia.  The coasts are at much higher risk for flooding and wind, while other areas such as California and Arizona are much more susceptible to fire and heat.  That doesn’t mean that this area is protected completely though either – there is still a higher risk when it comes to flooding, heat, and fire due to climate change.

It is a challenge for insurance industry and one that they are taking into account.  Broadly, here is a study that Deloitte did in regards to this:  Insurance Companies Prepare for Risk from Climate Change | Deloitte US.  And here is a link to a report from State Farm as to their strategy for climate risk to policyholders, as well as what they are going as company for environmental purposes.  Most of the relevant info are on pages 6-11:   2021 Task Force On Climate-Related Financial Disclosures Report (statefarm.com).

Since insurance is regulated at the state level, that can also impact coverages, premiums, etc.  Insurance companies in general do try to gather as much data as possible to assess each individual risk as they are certainly different in Charlottesville than from Virginia Beach.  Even further, a house will have a different level of risk in Charlottesville than in Waynesboro.  As of now, I haven’t seen large premium changes in this area due to increased risk, and with flood being excluded from a homeowners policy, that would help mitigate any future ones.  Flood is covered through the National Flood Insurance Program (NFIP), and they are in the process of updating their risk rating.  This article goes into it a bit:  Understanding FEMA’s Risk Rating 2.0 System for Flood Insurance | Bankrate.  Some states are suing FEMA over the rates though.

I tell all of my buyer clients that they should verify at or before contract ratification whether they can get affordable homeowners insurance. I think we’re close to being able to use the Homeowners Insurance Addendum again when representing sellers.

Everybody benefits when contingencies are quickly removed.

Related reading: How does climate change threaten where you live? A region-by-region guide.