When a natural disaster strikes, that fire, earthquake, hurricane or tornado isn’t just affecting people in the area. It’s affecting you and your insurance premiums.
Two key takeaways:
- The increasing frequency and severity of natural disasters is driving rate increases throughout the insurance industry.
- It’s critically important that you and your family are prepared if disaster strikes.
Natural disasters are increasing
The Centre for Research on the Epidemiology of Disasters estimates that the number of natural disasters is increasing by 7.4% each year. That figure doesn’t include fires. Add in the wildfires currently devastating portions of the West Coast, and that number might be higher.
When a natural disaster causes widespread destruction, insurance covers many of the costs of that damage. As a result, rates increase for all policyholders to help cover those claims.
Rate increases can be even greater in areas where natural disasters occur regularly. The National Association of Insurance Commissioners noted that in two disaster-prone areas, Oklahoma and Colorado, average homeowner’s insurance rates increased by 75-79% over nine years.
The reason is simple: According to the Insurance Information Institute, weather-related claims are the most frequent, especially damage caused by wind, hail, storms and flooding.
Insurers have no choice but to raise rates. One insurance carrier estimates that the California wildfires in late 2018 alone will result in $2.1 billion in claims. Another company has already declared insolvency because of those wildfires. [Source]
You can’t control when an insurer will raise its rates. But you can, and should, control what you’ll do when disaster strikes.
USAGov, the federal government’s official guide to government information and services, recommends that all homeowners:
- Create an emergency plan. Decide in advance how everyone will react to different types of emergencies, how they’ll escape the premises if necessary, and where everyone will meet. Don’t forget pets!
- Prepare an emergency kit. Families should stockpile medicine, clean water, food and other supplies in the event of evacuation, power loss or other issue.
- Remain informed. Get emergency information from the Federal Emergency Management Agency’s FEMA mobile app, National Weather Service alerts. Get automatic emergency alerts on your phone from the Wireless Emergency Alert (WEA) public safety system.
Insure against disaster
Don’t assume that your home will be covered in the event of a natural disaster. There’s no such thing as a “standard” homeowner’s policy that covers all possible disasters. Many homeowners assume that because their home is miles from any body of water, or because tornadoes or hurricanes are rare in their area, that they can skip that coverage and save some money.
Homes can flood during hurricanes and heavy storms. Local tornadoes can suddenly pop up, damage a few buildings and then dissipate. The odds of a natural disaster, like the numbers of disasters themselves, are increasing.
Clearly, understanding your insurance policy and making sure your home and possessions are covered if disaster strikes is critical. Getting an annual review of your coverage by an independent broker is the best way to find the right coverage at the best price.