Home Insurance Becomes $1 Trillion Problem.

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The industry has identified residential insurance risk as a problem for several years. Places like the Florida coast have thousands of homes that could be damaged by storms. The industry’s solution has been to raise rates. In some cases, insurers do not want the extreme risk at all. They leave markets completely.

One challenge for the industry is that climate risk continues to grow geographically. Current wildfires in the Western states are part of the proof. The same is true with hurricane-battered Houston. Insurance rates have even gone up in the center of the country due to hail, thunderstorms, and tornadoes. There could be 1,600 tornadoes in the US this year.

Insurers have not kept up with the pace of climate change geographically. Hail has become a risk in some areas where it was barely considered.

According to Bloomberg, the risk also falls on homeowners. Low insurance rates are married with low coverage–financially. A storm can destroy a $400,000 home insured for $300,000. “But premiums still aren’t high enough, mainly because almost nobody wants them to be. Homeowners aren’t fans of paying exorbitant insurance rates and tend to punish politicians who let them rise too much. Higher premiums also hurt property values, threatening tax revenue.” There is not a conspiracy. There is a lack of judgment.

Florida will be hit by a hurricane this week. Tampa could suffer millions of dollars of damage. Hurricane season has yet to peak. Wildfires in the US and Canada have burned over one million acres. Some of these fires are not contained. The residential insurance problem is about to become a catastrophe.