Secondary perils are smaller events following a primary event. Hurricanes, flooding, wildfires, drought and sea level rise. Secondary perils are not modeled (accounted for) in reinsurance underwriting. Sixty percent (60%) of 2020 insurance catastrophic losses were caused by secondary perils. As secondary perils are modeled and priced into reinsurance all insurance premiums across the nation are continuing to escalate annually.

With insurance companies worldwide now starting to report to investors and regulators how insurance companies are mitigating their climate risk. Lloyd’s of London is reporting to all insurance companies that climate change is now the number one risk in the future effecting: insurance underwriting, and risk management models. Which in turn will effect monthly insurance premiums. Strategic alliances are now in full collaboration mode worldwide! Insurance companies have changed their statistical modeling from using historical data to incorporate forward looking scientific data to predict future climate change events. Such as: hurricanes, floods, wildfires, droughts, rising sea levels , earthquakes, and disruption of the worlds food supply chain. However Insurance companies are still behind the eight ball as they cannot predict climate change events which are now occurring more frequently.

Insurance is all about risk assessment and financial accumulation and is the world’s largest industry with annual premiums between 4 and 5 trillion dollars accounting for over 7 percent of the global economy, a portfolio of 30 trillion dollars of assets under management. Over 125 worldwide insurance firms, from over 25 countries are actively participating in climate change research and developing climate change services and products. However it is interesting to note that insurance companies are not politically active lobbying, on climate change, carbon tax issues, or greenhouse gas emission  requirements. With climate change now identified as the number one underwriting risk, insurers are paying out larger claims from complex weather related events and increasing secondary perils claim losses. Increasing losses from all types of property damage, wildfires, global supply lines, and business disruptions. Mounting claim losses in turn create rising consumer premiums and effect insurance affordability, and insurance coverage. 

CLIMATE SCORES INFORM HOMEBUYERS 

For the last 35 years all insurance companies have done little to combat climate change. They did not lobby the government. Help coordinate resilient infrastructure, Zero innovation for home owners insurance products.  It was the real estate listing companies that researched and developed climate scores. A numerical rating displayed on their listing websites showing climate risks. Wildfires, hurricanes, extreme heat, flooding and poor air quality. Informing homebuyers of the climate risk prior to purchasing a home. Insurance is not factored into green mortgage underwriting guidelines. Every single insurance company nationwide did absolutely nothing for the last 4 decades(40 years), Insurance companies are the problem.

One prime example is the cost of flood insurance on coastal real estate.  As sea levels rise, from melting polar ice caps directly due from climate change effects, waterfront property values fall. Flood insurance premiums are rapidly rising in Norfolk VA, Atlantic City, and St. Petersburg Florida. This has effected the value and marketability of homes which require flood insurance now costing $7,000 annually per property! Rising sea water and sinking coastal land effects exactly which properties are determined to be located in the national flood zone. These flood zones are nationally documented by FEMA maps. However current FEMA maps document past flooding, and do not predict where future flooding will occur. As a direct result from rising sea waters,

Federal policymakers have now redrawn national flood boundaries.(FEMA) This in turn will require more home owners to pay for the rising cost of flood insurance. As individual insurance companies leave the market, the price of flood insurance is now too exorbitant for homeowners. Therefore flood insurance now incorporates subsidized premiums by state agencies who now rely on the National Flood Insurance program. Currently masking the risk and current real price of monthly home ownership. As this issue slowly emerges, there will be an adverse effect on mortgage financing. With government lenders loaning less money and homeowners required higher down payments(40%). Lower loan to value underwriting guidelines. FHFA, Fannie, Freddie, Hud, and VA all GSE underwriters have  zero climate underwiring guidelines for the traditional 30 year mortgage. A complete failure by FHFA for the last 30 years. As we are now in the accountability period. Who failed their responsibility and will eventually coerce the taxpayer to pay for there misguided steps over the last 4 decades.

This results in a quagmire for home buyers, as mandatory disclosure of past flooding, the current and future cost of flood insurance is not required by law. Preliminary studies indicate sea level could rise by 1.4 to 1.8 feet by 2050. This is the time frame of a traditional 30 year mortgage.  Eventually mortgage financing will collapse as homes are now being devalued by 90% due to coastal erosion as expensive residential homes are now falling into the ocean.

This FHFA and Insurance underwriting negligence and failure of Federal guidelines  will Force the taxpayer to once again bail out Fannie and Freddie due to the of all insurance companies lackadaisical  research, marketing, and lobbying to update their  climate risks to green underwriting policies. As insurance companies continue to invest their trillions of dollars, raise insurance rates unabated and withdraw insurance coverage. The taxpayer is now unwillingly subsidizing the trillion dollar insurance industry.

What has now occurred in the market is rapidly rising home owner insurance premiums.  More than 30% from 2020 to 2023. With California, Florida, Louisiana, Oklahoma and Texas the five  highest states Home owner insurance average 2,400 annually with Florida averaging over 11,000 annually. In many markets Insurance is simply not available. All insurers have left the market. Vacating insurance companies now have created “insurance deserts”. Geographical areas that no insurance company will issue a policy.  Once again the insurance companies are the problem.

In California and Florida insurance  is state funded  that is available. As previously stated all insurance companies have failed the home owner. Insurance is a perquisite for obtaining a mortgage and the annual premiums are not factored into mortgage underwriting. Another cost falling on the backs of homeowners due to the negligence of all insurance companies nationwide. In December 2020 The federal Reserve has joined Network for Greening the Financial System (NGFS). In January 2021, the Biden administration has made climate change a national priority striving for 2050 US net zero status. However these polices will soon  be reversed by president Trump. As previously stated the United states has no climate policy for the last 50 years under the last 8 presidents.

The search for coastal real estate located on higher ground has started to slowly emerge on both coasts. As waterfront property is now slowly loosing its value! There is now initial deflation on water front properties with a documented seven percent (7%) decrease in appraised value. In central Miami Florida and “little Haiti” developers are now incorporating sea level rise, aka climate risk in their future development real estate modeling. Purchasing coastal properties on “higher ground” is slowly becoming a fundamental prerequisite. This has led to climate gentrification slowly displacing lower income immigrants to purchase their low income properties resulting in climate refugees. These transitional properties are being purchased simply because of their higher coastal elevation. Developers will scrape these low income shanties and this will become the new future waterfront coastline. Climate change is driving this pricing gap to become more visible between riskier homes and safer homes by knowledgeable sophisticated investors.

The same process is occurring on the west coast. Malibu beachfront living is slowly loosing its luster. As the ocean front sand slowly dissolves into the pacific ocean, due to rising global temperatures. Celebrities like Lady gaga and Brad Pitt are purchasing California real estate located on higher ground. Still able to have ocean views, although situated on higher elevation real estate.

As these lower elevation properties sink into to ocean and a new coastal shoreline is developed savvy climate wise real estate investment trusts (REIT ESG) will develop new waterfront communities. However, using predictive modeling, clever site manipulation, space planning, using onsite fill to raise the construction elevation grade, constructing sea barrier walls to a higher datum point will create synergies between sustainability and resiliency. Additional resilient features will include: roof mounted generators, protected electrical equipment above the 500 year flood plain, main entrances facing away from the ocean, and incorporating wet flood proofing techniques. Incorporating and documenting these climate resilient strategies (flooding, wind storm ocean rise) will actually reduce insurance premiums as resiliency has now been constructed and incorporated into the new coast line community!

In the near future, when climate change modeling an ancillary extension of green underwriting will become mandatory into real estate purchasing and selling decisions, greenbrokers and their commercial counterpart sustainable brokers will become indispensable allies. Their expanded specialized green knowledge will be a sought after commodity as million dollar real estate decisions are being pondered by future sustainable homeowners and commercial Reit esg trusts.