Many of my recent posts discussed rising prices and high interest rates which have rendered home ownership unaffordable for many. Well, Bloomberg recently published an article that focused on another housing related issue that was completely off of my radar screen. Several experts argue that the increasing frequency and cost of climate related disasters indicate that somewhere between 17 and 39 million single family homes are underinsured against flooding, wildfires, severe storms, and other disasters. There are approximately 85 million homes in the U.S. which suggests that between 20% and 50% of them are underinsured to the tune of at least $30 billion.
The National Oceanic and Atmospheric Administration reports that there were 28 weather related disasters last year that did $1 billion or more in damage and we have experienced 15 so far in the current year suggesting we are on a pace to exceed last year’s total.
Why haven’t insurance companies increased coverage? While many companies have raised premiums on existing policies, further increases in coverage would require significant price hikes which would certainly meet with consumer resistance. In fact, several states have already enacted laws limiting the ability of companies to raise prices. As a result, companies are no longer offering coverage in some states which has forced homeowners to rely on state sponsored entities, many of which are woefully underfunded. An interesting aside is that taxpayers would be forced to step in should the state sponsored or Federal Flood Insurance Program become insolvent. Depending upon where you live, this may be the time for a meeting with your agent to review your coverages!