The expenses of recovering from natural disasters that occurred in 2020 will likely prompt property insurance costs to increase nationwide. The rising number and severity of hurricanes, wildfires, tornadoes, and other events have created greater risk for insurance companies. That will bring both higher insurance premiums and reductions in coverage for property owners, says a new white paper from SitusAMC, a tech and outsourcing firm for the commercial and real estate finance industries.
“The growing number of climate events has left the insurance industry reeling,” says Jennifer Rasmussen, co-author of the white paper and vice president and head of thought leadership and publications for SitusAMC Insights. “Many insurers and reinsurers have already seen their 2020 financials severely downgraded. As the intensity and scope of future catastrophes grow, insurance rates for property owners will likely rise significantly in the near future.”
Many insurance companies draw from reinsurance policies to protect themselves from natural catastrophes. The reinsurance industry has been experiencing losses for years and is currently passing along cost increases to insurers. That will ultimately impact property owners, the white paper warns.
“Most people may not be surprised to hear insurance rates are going up, but few understand how precarious the situation is for the insurance industry,” says Rasmussen. “As the number of climate-related disasters increases, many homeowners and residential real estate investors could be in for a rude awakening in the years ahead.”
The report doesn’t place a percentage on the increase homeowners or property owners may see.
The impact of natural disasters on the residential property market has not been limited to recent disasters in California and Florida, the report says. Some of 2020’s most costly disasters occurred in Texas, Virginia, and South Dakota. In 2021 in Texas, a winter storm was responsible for 40% of the total losses in the U.S. property insurance market during the first half of the year.