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Attorney Arie Lipinski

Homeowners insurance policies under threat from climate change

On Behalf of | Sep 6, 2023 | Environmental Law, Land Use And Property Rights

Climate change once seemed like a far-off, fairly abstract threat. It doesn’t feel that way anymore. Over the past 10 years or so, we’ve seen increasingly destructive storms, wildfires, floods, droughts and other natural disasters.

While policymakers try to figure out what to do about the problem, insurance companies have started to figure out their strategies: Here in Indiana, they are increasing rates for homeowners insurance policies. The cost of homeowners insurance went up more than 12% in just the past year. In other states, insurers are canceling policies and denying claims. Some insurers are shutting down operations in certain states.

What this means for property owners

From a purely economic perspective, it’s not hard to see why insurance companies are doing these things. Their industry is built on managing economic risk. When the risks get too great, their business model becomes untenable.

But from the perspective of homeowners, these changes can be disasters in themselves.

More than 65% of American households own their own homes. For most of them, the home is their single most valuable asset, and their greatest way of building wealth. When the cost of insuring a home goes up, it means the owner must bring down their asking price when it comes time to selling the property.

And, in the worst cases, losing homeowners insurance altogether leaves homeowners in a dire situation if their home is severely damaged or destroyed.

Possible solutions, and their consequences

Various government and private entities are trying to come up with solutions to these problems, with various levels of success. these range from large-scale initiatives to slow the rate of climate change itself to land-use policies to simply making homes out of sturdier materials.

At the local level, some of these initiatives and policies can have consequences of their own in environmental law as well as profound effects for landowners, telling them where they can build and where they can’t.

No one knows exactly how this will play out in the years ahead, but it seems certain that insurance disputes will become increasingly common and increasingly contentious.