This post is part of a series sponsored by CoreLogic.
When a natural catastrophe hits a community, there can be significant long-term impacts. When a large portion of the local population leaves the area during the rebuild process, local economies struggle, contributing to job displacement and the destruction of real estate and other assets. And even after reconstruction efforts are completed, the financial and social costs continue to be a burden on impacted areas. 2021 was a year of a thousand paper cuts, with wildfires, hurricanes, severe weather, and winter storms occurring all across the country.
Not all risk is the same
Data indicates that natural hazards are elevating risks and costs for insurers and homeowners, as indicated by the increase in total written premiums. For example, according to the California Department of Insurance, from 2017 to 2020, the total written premium in the state of California for dwelling fire and homeowners’ insurance combined has increased by more than 27%, from $8.7B to $11.1B.
CoreLogic data indicates that the combined sum of losses from major natural catastrophe events in 2021 totaled an estimate $56.92B. Wildfires, severe weather, hurricanes, and winter storms all contributed to this behemoth of a number. In the 2021 Climate Change Catastrophe Report, CoreLogic highlights the magnitude of damage coming from each of these perils, covering critical pieces of information such as dollars of property damage, reconstruction cost value, and number of homes impacted.
Not all risk is the same, and every natural hazard event has its own unique consequences — from total destruction, to personal property loss, to structural damage. For each of the four perils outlined in the report, the impact on homes will vary in degree, reinforcing the importance for insurers to regularly assess their portfolios using appropriate risk models to simulate the possible degrees of peril severity. By understanding various scenarios, insurers may be able to better protect their policyholders, rebuild faster and help establish community resilience.
Recovery can be complicated and costly
Reconstruction costs are an important element of a community’s recovery. While costs for various construction materials and laborers have always been in flux, this has especially been the case amid the COVID-19 pandemic. CoreLogic® Residential Component Technology (RCT) data indicates that costs significantly increased between March 2021 and June 2021. More recent data, however, indicates that costs leveled out between June 2021 and September 2021 as supply chains normalized after a year of disruption. This leaves costs meaningfully higher than they were two years ago, creating challenges for insurers in 2022. These price and supply uncertainties were and continue to be a strain on response and recovery efforts to the wide range of major natural catastrophe events that occurred throughout the nation.
Resilience is a combined effort
Using modern insurance solutions can play a significant role in addressing increasing climate change-induced hazard events and the impact they have on real estate economies. With nearly every property in the U.S. holding some exposure to hazard risk, it is critical for governments, insurers, mortgage servicers, and homeowners to work together to mitigate the impact. To learn more about resilience in the face of natural catastrophes, see the CoreLogic 2021 Climate Change Catastrophe Report.
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