The human costs of natural disasters are the most profound, but the dollar-value losses are quickly increasing due to climate change.
2021 was the second-most costly year for insurance companies as they paid out $120 billion in losses, according to Munich Re, the world’s largest reinsurer.
To compensate, insurance companies are raising premiums. In October, the federal government factored climate change into its insurance costs for the first time, as policyholders that use government-subsidized insurance in at-risk areas could pay as much as 18% more for their insurance each year for the next 20 years. According to First Street Foundation, a nonprofit that assesses flood risk, the average flood insurance policy could rise from $900 to $3,500.
“We’re almost always going to have to sacrifice money in the short-term to make things better in the long-term, and communities are very strapped for resources,” said Nancy Watkins, a consulting actuary with Milliman Inc.
In 2019, the company released a study on climate change gentrification that found that as many as 50,000 households in underserved Miami neighborhoods are at risk of being priced out by people looking to move inland because of lower insurance costs and farther proximity from the water. It also found 40,000 other households in under-served communities that were in the precarious position of dealing with rising insurance costs with no options to move.
It’s a difficult situation that is happening nationwide. In states like Nebraska and Iowa, heavier rains are increasing the number of flood-prone areas, and in the Western U.S., worsening drought is posing a stronger wildfire risk.
“When you have quickly increasing risks real estate values do tend to drop as insurance gets more expensive relative to what you’re buying,” said Watkins. “If that continues to happen there can be a snowballing effect.”
“This is a national crisis,” said Miami city commissioner Ken Russell. “There is a humanitarian side to it, and [the federal government] needs to invest and work with local communities. There’s such a disconnect there.”
To combat the effects of climate gentrification, Russell added a social justice seat to the city’s Climate Resiliency Board in 2017, which has been occupied by a member of the city’s low-income neighborhoods.
“When you bring in that human side of resilience, it changes everything,” he said. “So, by having that social justice seat and taking the recommendations of that board, when we went out for a $400 million general obligation bond, only half of it was on actual plumbing, and the other half was on affordable housing, and the human side of resilience.”
Difficult issues require new solutions, and commissioner Russell says he hopes what is happening in his city serves as a benchmark for what can be done nationwide.
“This is major change in philosophy of how you address climate change and resilience, and it has a huge human effect, but we’ve got to be the model,” said Russell. “We’ve got to take big steps and I hope others follow.”