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Over the past five years, the US has experienced an average of 18 natural disasters per year. This year, as of August 15, natural disasters have already caused more than $1 billion in damage. With climate change, these events are becoming more frequent and with each occurrence, many Americans suffer financial losses.
According to new research, 2 out of 5 Americans currently live in states where losses due to natural disasters exceed the national average. Residents of these “high-loss” states are less likely to have home insurance, which may exacerbate the negative effects of these residents following a national disaster.
Percentage of Homeowners and Renters Covered by Homeowners Insurance Living in High-Loss Versus Low-Loss States, Source: FHN
Low insurance coverage is driven by the proportion of renters in these high-loss states. According to the research, 37% of people in high loss states rent their homes, while only 27% of people in low loss states rent their homes, and renters are less likely to purchase home insurance. Research states that because renters are more likely to have low household income, a lack of insurance increases their likelihood of financial vulnerability after a disaster.
To help their customers prepare for natural disasters, there are steps financial institutions can take to ensure that consumers are better prepared in the event of a natural disaster. For example, FIs may include information about insurance as part of their exit strategy for their mortgage customers. In addition, insurance providers may continue to offer home insurance as well as incentives on weatherproof homes.
As prudent as these recommendations are, there is also a worrying trend for insurers to drop their coverage in some areas due to the increasing frequency and rising cost of weather events. State Farm said both State Farm and Allstate have pulled out of insuring properties in California due to “historic increases compared to inflation” in construction costs, rapidly increasing disaster risk and a challenging reinsurance market.
As the number of disasters increases, the insurance business becomes less profitable, leading to an increase in areas of the country that cannot be insured. Therefore, climate change is not only bad for small businesses and roadside shops, but also affects entire sectors and the consumers who depend on them for their business.
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