How Climate Change Impacts Insurance Coverage and Premiums

Climate change is reshaping many aspects of our lives, and the insurance industry is no exception. As extreme weather events become more frequent and severe, insurers face new challenges in assessing risks and determining coverage and premiums.

Natural Disasters Increase Claims

One of the most significant impacts of climate change on insurance is the increased frequency and intensity of natural disasters. Hurricanes, floods, wildfires and other extreme weather events are becoming more common, leading to higher claims for damages. This surge in claims puts pressure on insurance companies to adjust their risk models and, consequently, their premiums. Homeowners in high-risk areas may see substantial increases in their insurance costs as insurers try to mitigate potential losses.

Weather-related Impacts on Coverage Needs

In addition to higher premiums, climate change may also lead to changes in coverage. Insurers might exclude certain types of damage from standard policies or require additional riders for coverage. For example, flood insurance, which is often not included in standard homeowners’ policies, may become even more essential as flooding risks increase. Similarly, wildfire coverage might become more expensive or difficult to obtain in areas prone to wildfires.

Advancements Become Necessary

Moreover, climate change is prompting insurers to invest in more sophisticated risk assessment tools. These tools use advanced data analytics and climate models to predict future risks more accurately. While this can help insurers set more precise premiums, it also means that individuals and businesses in high-risk areas may face higher costs or difficulty obtaining coverage.

Nonproperty-related Changes

The ripple effects of climate change on insurance are not limited to property insurance. Health and life insurance may also be affected as climate-related health issues, such as heat-related illnesses and respiratory problems from poor air quality, become more prevalent. Insurers may need to adjust their policies and premiums to account for these emerging risks.

Learn More

Contact the team at Leicht Insurance today to learn more about how climate change may impact your coverage needs and costs.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.