Extreme weather’s financial impact on drivers and homeowners
Key takeaways
- Extreme weather is becoming more frequent, with a record-breaking 183 billion-dollar disaster events occurring between 2014 and 2023.
- The cost of home and auto insurance is increasing in part due to extreme weather frequency, but many household costs, like increased utility bills and evacuation expenses, are not covered by insurance.
- Preventative measures, such as home and auto maintenance, may help you save money and mitigate losses from extreme weather.
Unpredictable weather patterns and increasingly severe weather events can have a significant financial impact on both homeowners and drivers. Bankrate’s Severe Weather Financial Impact Survey found that 57 percent of U.S. adults say they have incurred costs due to an extreme weather event within the past 10 years. While increases in wildfires, tropical cyclones and other catastrophic events are concerning for drivers and homeowners, selecting appropriate auto and home insurance policies may help financially protect your investments.
How extreme weather impacts homeowners insurance costs
As of June 10, 2024, there have been 11 weather-related disasters totaling over $1 billion each, according to the National Oceanic and Atmospheric Administration. And over the past decade, the U.S. has experienced more than $1.1 trillion in damage from extreme weather — the most of any decade on record.
High winds from severe storms and damage from wildfires are usually covered by standard home insurance and account for most of the damage in the past 10 years. Flooding from hurricanes and heavy rainfall is another common cause of catastrophic losses. However, damage from flooding is not covered by standard home insurance. Homeowners must purchase separate flood insurance, and rates are based in part on the flood risk associated with the home’s location.
With the United States Environmental Protection Agency (EPA) warning that weather patterns are shifting and severe weather will likely be more frequent and intense, the cost of home insurance is likely to continue ticking upward, too. Here’s why.
The goal of home insurance is to protect the homeowner’s financial interest by transferring a significant amount of financial risk from the homeowner to the insurance company. In turn, insurance providers use reinsurance companies to share the burden of risk and avoid insolvency if a catastrophic event causes a high volume of claims. However, since the costs and frequency of natural disasters have risen, so have the premiums insurance providers pay the reinsurers. These rate hikes are then passed down to the homeowner.
At the same time, the inflated cost of building materials and labor is driving up claim costs, compounding problems across the board. This situation puts both insurers and homeowners in a financial conundrum. Homeowners may not be able to continue paying for the increased cost of home insurance, and insurance companies may not be able or willing to absorb increased rates from reinsurers.
The cost of extreme weather on car owners
Similarly, the average cost of car insurance is increasing across the country due to more frequent claims, hefty reinsurance costs and inflation, among other factors. In fact, auto insurance rates increased by 13 percent from June 2023 to June 2024, according to Bankrate’s analysis of quoted premiums from Quadrant Information Services.
Drivers living in areas that experience repeated catastrophic losses, like Florida and California, may see their insurance premiums surge even more due to the heightened risk of future losses.
Weather-related damage covered by car insurance (specifically, policies that include comprehensive coverage) include:
- Fire/wildfires
- Lighting strikes
- Flooding
- Wind/hail damage
While these types of incidents typically do not have fault assigned, drivers who file a comprehensive claim could incur surcharges when their policy renews, upping their annual car insurance costs. Meanwhile, a driver deemed at fault for an accident — due to slick roads, obstructions, precipitation, fog or any other factor — is only covered for the damage their vehicle incurs if they carry collision insurance on their policy. At-fault accidents almost always equate to higher car insurance rates the next time the driver’s policy is renewed.
Although collision and comprehensive coverage are not required by law, if you opt out of these coverage types to save on your premium, you’ll be on the hook for any weather-related or at-fault losses that result in physical damage to your vehicle.
Costs incurred due to extreme weather
Extreme weather impacts more than auto and home insurance; it can impact everyday life. Surprise costs from high energy bills or evacuation expenses can easily put people in challenging financial situations. In fact, 56 percent of U.S. adults wouldn’t pay for an emergency expense of $1,000 or more from their savings account, according to Bankrate’s 2024 annual emergency savings report.
Financial preparedness for extreme weather
Reiterating other findings, reports from the California Institute of Technology show that extreme weather events will continue in frequency and intensity, which is problematic for insurers and homeowners. Insurance premiums are based on historical data and future risk. With the likelihood of more catastrophic losses in the near future, several insurance companies are increasing premiums, changing coverage options and restricting or eliminating policy coverage in certain states and locations.
Having an auto or home insurance policy that covers common natural hazards in your area is a significant part of financial preparedness. Homeowners in Florida may find this notably challenging due to the ongoing home insurance crisis, and the home insurance markets in California and Louisiana are also problematic. With extreme weather patterns emerging throughout the nation, experts recommend speaking with an insurance professional to secure coverage for losses that standard home insurance policies may not cover. This could mean purchasing endorsements to add to your existing policy or buying standalone policies.
Flood insurance
Flooding is not covered by a standard home insurance policy. Many Americans secure coverage through the National Flood Insurance Program; others buy coverage through a private flood carrier. The average cost of flood insurance is $800 per year, in addition to what you pay for your home insurance. Keep in mind that it isn’t just homeowners in traditional floods states that should consider flood insurance. In recent years hurricanes have caused flooding events to occur along the East Coast, impacting states like New York and Massachusetts. Additionally, areas that experience severe drought and wildfires often encounter flash flooding.
Wildfire insurance
In most states, wildfires are covered by home insurance. However, in states where wildfires are prevalent, you may have a separate deductible or need to purchase coverage from your state’s Fair Access to Insurance Requirements (FAIR) Plan. This is the situation for many residents of California, and Colorado is currently working on making its FAIR Plan operational.
Wind insurance
How your home insurance policy will cover your home in the event of wind damage depends on where you live. According to the Insurance Information Institute, in 19 states plus Washington, D.C., homeowners have a hurricane and wind deductible separate from their standard policy deductible. Wind and hurricane deductibles are usually based on a percentage of your dwelling coverage. Many homeowners in states like Texas and Louisiana have a separate wind policy through a state FAIR plan.
How to prepare your home and car for extreme weather
You can’t stop extreme weather from happening, but you may be able to mitigate your financial loss and limit damage by preparing your car and home for a natural disaster.
Preparing your home for extreme weather
Protecting your home from natural disasters starts with formulating a plan. The best method to prepare your home depends on the pending peril, whether you own or rent and your budget. Below are some suggestions to mitigate loss from common extreme weather events:
- Flooding: Sealing foundation cracks, clearing your gutters and floor drains and using sandbags to divert water from your home can help you minimize flood-related losses.
- Wind/hail damage: Storing or anchoring patio furniture and other outdoor equipment can prevent it from becoming a projectile during high winds. Wind-resistant roofing and hurricane shutters are permanent options that can drastically reduce wind damage and may make your home eligible for a wind mitigation insurance discount.
- Extreme heat or cold: Whether you rent or own, adding weatherstripping to doors and windows is a cheap way to keep the temperature in your home stable and reduce the cost of utility bills.
- Wildfire: Clearing defensible space around your home and eliminating flammable debris can help keep flames away from your home’s structure. Clearly marking water sources and putting hoses at all of your outdoor spigots can help firefighters defend your property from wildfire.
Preparing your car for extreme weather
Protecting your car from a natural disaster can be easier than your home since it’s mobile. However, if you own more than one vehicle, it is good to know what steps to take to limit the risk of damage.
- Flooding: If time permits, remove any essential items and documents from your vehicle. Make sure all windows, doors and the sunroof are shut tight, and park it on high ground.
- Wind: A garage is often the safest place to store your car to prevent wind damage. Parking your vehicle against your home or in a public parking garage are potential solutions for those without their own garage. Do not leave your car under trees or powerlines.
- Extreme heat or cold: Basic car maintenance is the best defense against extreme cold or hot temperatures. Checking fluids and tire pressure, inspecting the battery and replacing windshield wiper blades can help reduce early wear and tear that extreme temperatures can cause.
- Wildfire: Having a HEPA cabin air filter can help you maintain the air quality in your vehicle while driving away from a fire. If you’re leaving a vehicle behind, park it away from flammable brush.
Frequently asked questions
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Yes. Working with an experienced insurance agent can help you choose the correct coverage for extreme weather events in your region. For homeowners, endorsements or standalone policies are often available for excluded perils, such as flooding and earthquakes. For auto owners, purchasing full coverage insurance provides financial protection for most perils, but you may be able to add endorsements, like rental car insurance or new car replacement, for more robust coverage if your car is damaged in an extreme weather event.
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If your property is damaged by a natural disaster, home insurance may help mitigate the financial loss and help you replace personal property or repair your home. Aside from dwelling coverage, home insurance also has loss of use coverage. This coverage can help reimburse you for additional costs incurred while living at another location if your home is uninhabitable during repairs from a covered claim. This could include hotel costs or animal boarding. Some lesser-known benefits of home insurance include reimbursement for food spoilage and for supplies needed to prevent your home from experiencing further damage, such as tarps for your roof or wood to board up your windows.
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