How Climate Change Affects Your Insurance

iStock_000010634240XSmallWhile much has been made of the reasons for climate change on our planet, not a lot of discussion has taken place around the effects on insurance. However, this matter has recently become a very important topic to insurance companies around the world as it can have severe impacts on insured losses. As you know, much of insurance underwriting is based on the experiences of the past. If the global climate change creates weather patterns that we have never seen in recent recorded history, the underwriting models used by insurance companies may be completely inaccurate. This concern will definitely impact your ability to secure effective home insurance.

Far from being merely an environmental concern, the insurance industry has started taking notice of the perceived effects of climate change. With an increase in severe weather events, insurance companies might find it difficult to continue providing insurance coverage and support to property owners in disaster-prone areas. For example, if you live in theSeychelles, which is an island nation in the Indian Ocean, you might soon find your home completely under water. Scientists predict another three feet of rising ocean water will make the entire nation uninhabitable. As it is, the nation is quite susceptible to any sort of tidal activity.

While you don’t think that the concerns of an island nation match those of your home on solid ground, you should consider the overall economic efforts. Even in the U.S., there are plenty of homes along the coastline that can be affected by rising oceans and severe storm activity. Think about all the people on the east coast who were so affected by superstorm Sandy. These types of storm events may be an indicator of what we can expect on a more regular basis in the near future. Not only do these storms create significant damage, they can also cause insurance companies to rethink their interest in providing insurance.

The already significant damages caused by rising water result in the National Flood Insurance Program’s existence. Private insurers cannot properly sustain the expected flood losses and require the federal government to support their efforts in order to continue providing coverage. If the effects of climate continue to cause increased losses, the flood insurance program may become more stressed. Additionally, coverage for windstorms and other weather-related perils may be similarly impacted. Therefore, as a regular citizen, you should definitely have a stake in what happens with climate change – if for nothing else, then for how it can affect your home insurance.

According to the Los Angeles Times, annual insured losses from weather-related claims are in excess of $50 billion. What’s even more startling is that this amount has been doubling every decade since the 1980s. At this pace, the insurance industry will need to make some significant changes in either how they underwrite or simply walk away from providing cover for some risks. The latter is the worst possible scenario that can happen to homeowners.

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