Insuring Your Real Estate Investment in an Era of Climate Change—Without Downsizing Your Dream

“Florida is in the crosshairs of climate change.”

So warns Dr. Ben Strauss, CEO and Chief Scientist of the Surging Seas project, in a Miami Herald op-ed, further noting that “a small amount of sea level rise can make a big difference — multiplying the odds of extreme coastal floods around the United States, not just South Florida.”

“Think of it like raising the floor at a Miami Heat game: you’d see a lot more dunks,” Strauss continues. “Overall, sea level rise is making the odds of a South Florida flood reaching more than 4 feet above high tide, by 2050, on par with the odds of losing at Russian roulette.”

The effect is not contained to hypotheticals, however: As climate-related extreme weather events become more frequent, some homeowners have seen property insurance rates rise at twice the rate of already red-hot inflation, according to Policygenius. Further, from “May 2021 to May 2022, 90% of homeowners saw their quoted annual premium increase compared to the previous year.”

In Florida, the state most frequently in the path of hurricanes, the problem is particularly acute: Policy rates have risen 50 percent over the last four years while no fewer than ten property insurers have gone insolvent and shuttered.

Why? Skyrocketing reinsurance rates—predicted to rise between 40 and 50 percent next month in Florida—are a major reason.

“When primary carriers need to protect themselves from catastrophic loss (like hurricanes and other natural disasters), they purchase reinsurance,” insurtech analyst Joshua Skirvin writes. “It’s an essential component of the Florida insurance ecosystem and, when purchased from reinsurers, these carriers distribute the cost to customers through higher premiums. As the frequency and severity of natural disasters increase, it raises our regional risk profile, which means reinsurers charge more for coverage, causing carriers to cover the cost by increasing premiums.”

The good news? Relief may be on its way, thanks to developments in three areas:

  • Legislative. Unlike most policy issues in America today, there is a bipartisan desire to address the property insurance crisis. In Florida, a bill signed into law last year aims to provide $2 billion in reinsurance relief and earmarked $150 million for the My Safe Florida Home program, which helps residents upgrade their home hurricane defense and reap the rewards in lower premiums.
  • Technological. As Skirvin notes, “From risk and climate assessment and modeling to claims processing to aligning organizational objectives with climate-focused company vision and mission through an objective strategic decision-making framework, tech is evolving to meet the coming premium challenge.”
  • Profit incentive. InnSure—a non-profit founded to “amplify and accelerate climate-friendly insurance solutions”—was recently tapped by the state of New York to administer its $6.5 million insurance innovation fund, which “includes grants to encourage the development of new insurance policies and products that support new clean technologies.” As InnSure Executive Director Charlie Sidoti explained on a recent podcast, “I’ve always been environmentally conscious, but it’s not just about doing good for the sake of being a good person. The UN suggests that there’s going to be $5 trillion a year spent on climate. Suppose Property & Casualty (P&C) captures 2% of the global economy. In that case, we stand to capture $100 billion in new business.”

Of course, neither climate change nor rising property insurance premiums are problems that arose overnight—and the mitigations and solutions will take time as well as trial and error to sort out in any meaningful sense.

For prospective home buyers, this means it is important to include property insurance premium volatility into the matrix of any purchasing decision. This doesn’t necessarily mean foregoing a property or location you have your heart set on, just going into any purchase with eyes wide open and a realistic assessment of potential costs. Overestimate rather than underestimate premiums and, at worst, you’ll be prepared. At best, you’ll experience a preparation windfall.

For those who already own properties, the Wall Street Journal published four suggestions for how to reduce home insurance premiums: Raise your deductible. Consider (carefully!) eliminating some coverage. Asking for discounts or switching carriers at renewal time to secure a better deal. And, often related to the last, bundling coverages.

As in all things, as you navigate the home ownership and insurance process, knowledge will be power. Which is why it is essential that you surround yourself with a seasoned team of experts who understand the many moving parts across the current real estate landscape.

As Florida’s leading balance sheet lender, A&S Capital not only provides direct financing on single and multifamily residential real estate throughout the country, but helps buyers such as yourself secure tailored, bespoke solutions designed to channel the right lending to the right deals at rates that are fair and favorable.