The Impact of Climate Shocks on Homeowners' Insurance

A Legal, Economic, and Public Policy Analysis

Abstract

 In the past decade, climate shocks have ravaged the United States at unprecedented levels.  This paper addresses one of the first victims: homeowners.  Given the increasing frequency and severity of these shocks, insurance companies have begun charging sky-high premiums, or in a rising number of cases, completely dropping policies in high-risk states.  Consequently, public policy has shifted, leaving homeowners in certain areas to choose between two options: insurers of last resort, such as California’s FAIR Plan, or non-admitted insurance.  Adding to this problem are the economic implications, with several experts citing concerns that the cascading effects could prove to be worse than the 2007/2008 financial crisis.  Further, there is the legal aspect, with legislation, regulation, and litigation all playing a role.  Finally, while a variety of solutions have been proposed to address this crisis, none have proven completely effective.  Thus, to prevent additional devastation, the paper offers two recommendations on how society should proceed.