US Property Market Needs Climate Risk Insurance
In recent decades, Americans have flocked to picturesque yet weather-vulnerable regions. Florida, once a swampy frontier, now stands as the nation’s third most populous state and frequently bears the brunt of hurricanes. With over $13 trillion in real estate along the Atlantic and Gulf coasts by 2015, a similar trend is observed out West. Homes have flourished in the wildland-urban interface, where nature and urban development precariously coexist, seemingly perpetuating wildfire seasons.
The increasing prevalence of extreme weather can be attributed to climate change. However, the economic toll of storms and fires hinges more on the number of residences erected in high-risk areas. Inflation-adjusted figures reveal that 2023 has witnessed more billion-dollar disasters than any year since the National Oceanic and Atmospheric Administration began record-keeping. While losses relative to GDP have remained relatively steady over the past four decades, there are notable exceptions at the local level. For instance, hurricane-related damages last year cost Florida between 7.5% and 10% of its state GDP.
This climate highlights the urgency of letting insurance serve as a signal for risk assessment. Policymakers should acknowledge that climate change poses significant challenges to the property market. Hence, it is imperative to consider the financial ramifications of constructing homes in vulnerable regions. By incorporating insurance data as a metric for risk evaluation, we can better prepare for the growing threats of climate change to America’s property market.
Re-reported from the article originally published in The Economist
