Climate catastrophes, higher costs add up to higher premiums, canceled policies for homeowners

Insurance premiums are going up for those lucky enough to be able to get insurance.

A new estimate says that total global insured losses from natural catastrophes can be expected to exceed $100 billion a year, not just this year but every year going forward.

“The growth in exposure values, driven primarily by continued construction in high-hazard areas, and rising replacement costs – largely due to inflation – are the most significant factors responsible for increasing catastrophe losses,” Bill Churney, president of Verisk extreme event solutions, said in a statement quoted by Insurance Journal.

Churney said climate change isn't the primary villain.

“The other significant factor is the impact of climate change, which is often cited as the primary reason for the increase in losses. But, while this plays a role, year-over-year growth of exposure and rising replacement values have a far greater short-term impact.”

Whatever the cause, the Verisk report says insurers should assume at least $100 billion in losses each year while preparing for a possible loss of $200 billion or more.

What this means for consumers – both homeowners and renters – is higher insurance premiums. California and Florida are often singled out but the factors Churney mentioned occur nearly everywhere, making it essential for consumers to be prepared to shop around for new insurance coverage if their existing policy is canceled or if they simply feel they're being priced out of continued coverage.

Take action to stay insured

What can homeowners do to control insurance costs? Besides avoiding building in areas notorious for natural disasters like hurriances and floods, the answer is not much but it's still necessary to be prepared if your policy is canceled or the premium becomes unaffordable.

The first step is to know your renewal date. One to three months before this date, your insurer should notify you if they decide not to renew your coverage or increase your premium. That gives you time to shop for another policy, the Consumer Financial Protection Bureau advises.

If you get bad news from your insurer, the first step is to contact them and ask why. You may be able to get them to reconsider. If you have not had any major claims and if you have safety measures like fire and smoke alarms, sump pumps, flood protection valves or other devices that help keep your property safe, you can use that as evidence that you're not a high-risk client.

There's also your mortgage company to worry about. Mortgages require homeowners to have adequate coverage. If you let your coverage lapse, the mortgage company will impose a policy of its choosing – and it is likely to be much more expensive.  

Be ready to shop around

Maybe you'll get lucky and none of this will happen to you. But then again, maybe not. That's why it's a good idea to get familiar with insurers writing policies in your area. Remember, insurance is regulated at the state level. The policy your brother in Missouri has may not be available to you in Illinois.

The National Association of Insurance Commissioners has a list of the companies licensed to write policies in each state. It's a good place to familiarize yourself with what's available in your state.

You may find that you just can't find a policy from a private company. Fortunately, most states have fallback plans that will provide coverage, though the cost may be much higher than a private policy. The NAIC has information on this as well. The Consumer Financial Protection Bureau also has an excellent guide to insurance questions.

Don't forget flood insurance. Homeowners insurance typically does not cover floods. There is a government-backed federal flood insurance program that everyone in a flood-prone area should look into.