Buncombe County, NC GIS
I promise in future pieces I will talk about positive things like resilience, building techniques, and so on. In the meantime, you know, bad news first. Like the volatility of the insurance industry. Being centered on statistics and prediction based on the past, the insurance industry is having to revamp the process of risk assessment since natural disasters are changing in nature and intensity at a pretty quick pace. Everyone will be impacted by the industry’s adaptations; after all, we pay a lot to make sure that if our house is damaged, we can afford to rebuild. For economic sectors dealing with climate change impacts, the insurance industry is the “canary in the coal mine.” And it is a huge deal to homeowners. One certainty is that the cost of policies will increase. What is not certain is when and how these will play out. Major insurers are already considering at what point coastal properties will cost more than their value to replace. Will flood insurance make sense? Will actuaries determine that certain geographical locations are simply uninsurable?
Swiss Re, a reinsurance company, has published comprehensive research into ongoing catastrophe perils (see: https://www.swissre.com/institute/research/sigma-research/sigma-2019-02.html ). “Coastal flooding will clearly become a bigger issue in the long term,” says Swiss Re, “…we can offer protection for hurricane losses or flood losses or other perils, but if certain coastal areas are so exposed, insurance becomes no longer viable. It becomes even uninsurable.” (WSJ: Climate Change is Forcing the Insurance Industry to Recalculate). It’s a no-brainer that likelihood that flood prone areas won’t be insurable is a profound real estate issue. A person’s home is likely their greatest asset and inability to get insurance would be catastrophic to a homeowner’s net worth. As locations become harder and more expensive to insure, the property values decline. Unfortunately, Miami Beach, Hollywood, Florida, and Ocean City, NJ have the present unpleasant distinction of being at the top of property value loss due to water inundation (Weather Channel). At what point will locations like these become underwater, pardon the pun.
Insurers expect the flood insurance market to grow; which is a positive business outcome, but to what extent? As stated above, already some areas are challenging the wisdom of insuring them. So, in the face of these changes, experts agree that coastal property owners will begin, and have begun, to move inland. It’s certain that coastal flooding is causing coastal real estate to decline in value while the cost of insuring increases. That extra cost alone is often enough to sway a buyer against a property, especially as the National Flood Insurance Program faces an extreme overhaul (https://e360.yale.edu/digest/as-risks-rise-an-overhaul-announced-for-federal-flood-insurance) As a buyer agent, part of my responsibilities is to check flood zones to inform buyers about insurance. Presently in North Carolina, the average cost of flood insurance is $370/year per $100,000. Depending on the location in the flood zone the premium may be higher or lower. But the NFIP is 10’s of billions in debt, especially following Harvey in 2017. Hurricane Florence hit coastal North Carolina with whopper flooding and storm surge in an area where only 50% of homes in NFIP areas have flood insurance and in areas where 80% of the homes damaged by flooding were outside of FEMA flood zones (https://thinkprogress.org/many-people-hit-by-hurricane-florence-may-not-have-the-flood-insurance-to-pay-for-damages-ed65e3310ae5/ In 2009, the NC legislature passed a law that would allow for all residents of North Carolina to carry the insurance burden of coastal coverage deficits. I imagine this will be the trend from coastal areas to fire prone areas.
So certainly the cost of insuring real estate will increase. Rather than wring our hands, though, let’s put the cost of home ownership in perspective. In 1989, the year we purchased our first home, the average mortgage rate was 10.32 – down from 16.63 in 1981 (not much refinancing going on then!). The average in 2018 was 4.54. This spread more than makes up for higher insurance costs. It does not make up for the rising seas, though. As floods and fires, of the myriad natural disasters, increase, land values will see dramatic changes.
What does this mean for demographics? I’ll be looking at that in a future post.