In recent years, devastating natural catastrophes fueled by climate change have taken a major toll on infrastructure and our collective psyche. In addition to claiming human lives and causing widespread destruction to land and property, these climate-related disasters are also contributing to rising insurance premiums.

According to Swiss Re, the world’s largest reinsurer, extreme weather events caused an estimated $280 billion in economic losses in 2023 driven largely by the increased frequency of catastrophic hurricanes, tornadoes, floods, hailstorms, and wildfires. With insured losses from these events reaching a new high of $64 billion, the risks are becoming more apparent—and the insurance industry has taken note.

Much of this fallout has landed at the feet of homeowners, many of whom have seen their insurance premiums go up, especially in disaster-prone areas. In regions considered particularly risky, some insurers have even reduced or withdrawn coverage entirely. And the impact is not confined to property insurance. As the effects of climate change become more widespread, premiums for auto insurance, healthcare insurance, and life insurance may also be set to rise.

To help you respond effectively, here we explore the impact that climate change may have on your insurance and discuss strategies for reassessing your current policies—and maybe even your approach to insurance altogether.

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The Risks Are Real: What’s Changing Today?

When setting rates, the insurance industry uses actuarial analysis to estimate payouts on potential claims. That analysis, however, is based on historical data—much of which is proving inapplicable as the risk of extreme weather events rises. To mitigate these risks, many insurers have begun raising premiums and limiting coverage across various policy types.

How Climate Change Is Impacting Homeowner's Insurance

In 2023, property insurers lost money in 18 states due to extreme weather events. Losses like these are driving up the cost of homeowner’s insurance across much of the nation. Between 2022 and 2023, home insurance rates rose by a national average of 11.3% and by as much as 50% in states particularly affected by climate change. According to Swiss Re, the rate hikes are projected to continue, increasing by 5.3% each year through 2040.

As insurance companies wake up to the destructive potential of systemic climate risks—such as floods in lowland areas, property-destroying winds, and the rising incidence of wildfires—they may begin to pull their coverage altogether. This may force affected homeowners to rely on government-sponsored insurance that tends to provide less coverage than standard policies, such as the Federal Emergency Management Agency (FEMA) National Flood Insurance Program or a state's Fair Access to Insurance Requirements (FAIR) Plan.

Across the United States, new weather extremes also create the possibility of unprecedented climate events. For instance, extended rain in dry climates can trigger flash floods, which can be devastating for local homeowners who don't typically buy flood coverage. According to FEMA, more than 25% of flood insurance claims come from properties outside high-risk zones. In other words, it may be time to reevaluate your coverage.

How Climate Change Is Impacting Auto Insurance

Homeowner’s insurance is not the only type of policy being affected by climate change. In 2024, car insurance rates rose in the U.S. by 26%. While some of this increase is due to factors such as inflation and population density, climate change is also playing a role.

Beyond elevating the risk of motor vehicle collisions, extreme weather events such as tornadoes, torrential rains, hailstorms, and heat waves can cause vehicular damage or destruction. With repair and replacement costs on the rise, insurance premiums and deductibles are going up in tandem, particularly in states where natural disasters are more prevalent.

To cover these rising costs, you may want to consider reviewing your collision coverage and/or increasing your comprehensive coverage, which pays for damage caused by incidents other than collisions.

How Climate Change May Impact Health Insurance & Life Insurance

As insurance companies begin to reassess their financial models to take climate change into account, premiums may rise for policies beyond property and automobile coverage. This is particularly relevant considering recent reports that link extreme weather events to higher rates of hospitalization and mortality.

For instance, a study in California recently found that extreme heat and wildfire smoke events coincide with higher hospitalization rates for people with cardiorespiratory symptoms. Notably, higher temperatures and increased air pollution were linked to more heart attacks, strokes, cancer, and lung problems. A broader analysis of extreme weather events across the U.S. similarly concluded that emergency department visits and mortality rates both rose for six weeks following natural disasters.

While this data has not yet contributed to rising premiums for healthcare coverage or life insurance, it may inform future insurance models—especially with insurers under growing pressure globally to both assess and report on the effects climate change may have on their business operations.

As heat waves worsen in summer and cold snaps become more extreme during winter, higher-risk individuals or those with pre-existing health conditions may want to review their health and life insurance policies to determine if they have sufficient coverage to account for the physical impact of unanticipated natural disasters.

Ways to Mitigate Insurance Premium Increases

Rising insurance premiums are just one part of our uncertain climate future. Fortunately, there are ways to counteract the spiralling prices. These include:

• Building an emergency fund to pay for climate-related losses that may not be covered by your existing insurance policies.
•  Bundling your home and auto insurance through the same insurance company to qualify for premium discounts.
• Increasing your deductibles, which typically lowers premium payments.
• Taking preventative action by making approved adjustments to your property to lower your homeowner’s insurance premiums. While specific programs and policy discounts will vary from insurer to insurer, you may be able to explore a new relationship with your insurance company through a preventative action program.

Examples of Preventative Action with Home Insurance

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Contact your insurance agent or visit your insurance company's website to learn more about potential discounts available through bundling your policies, increasing your deductibles, or taking preventative action to save on your premiums. Even if your insurer doesn't offer immediate policy deductions for taking preventive measures, you could still consider implementing them to make your home more resilient to the effects of extreme weather.

Your Climate Change Insurance Checklist

No matter where you live, there are steps you can take to keep climate change in mind when structuring your insurance plan. The potential benefits include saving money on your insurance premiums and improving the hardiness of your home or properties. This checklist will help you refamiliarize yourself with your policies.

1. Assess your climate risk: Consider the risks posed by climate change in your area, from the impacts of worsening temperature extremes to the likelihood of natural disasters like hurricanes, wildfires, and floods. You can use free online climate intelligence tools like ClimateCheck to review your risk outlook.
2. Review your current coverage: Look closely at your existing insurance policies to determine which risks are covered and which aren't. Remember to consider your coverage limits in relation to the value of your assets.
3. Update your coverage: If your current policies are insufficient for your risk profile, consider increasing your coverage with your current insurer or shopping around for policies from different insurance companies.
4. Meet with your financial advisor: The Wealth Enhancement team can help you assess your insurance needs and determine the best coverage for your unique situation. We are here to help you understand the complexities of the insurance market and make informed decisions that align with your short- and long-term financial goals.

By taking these steps, you can determine if you have sufficient coverage to protect yourself, your family, and your assets in the face of the changing climate.

The Bottom Line

As the risk of extreme weather events increases, insurers may raise your premiums—or pull your coverage altogether. To avoid being caught unprepared, speak to a Wealth Enhancement advisor. Beyond working with you to assess the adequacy of your coverage, we can help you build an emergency fund and refine your financial plan to help you remain resilient to potential climate impacts.

Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor and affiliate of Wealth Enhancement Group®. Wealth Enhancement Group is a registered trademark of Wealth Enhancement Group, LLC.