Loan Officer | NMLS #91019
Branch NMLS #1627273
Posted On May 22, 2019
In 2018, the United States suffered 14 natural disasters spanning coast to coast from wildfires in California to hurricanes in Florida. The National Oceanic and Atmospheric Administration (NOAA) reports natural disasters cost the United States $91 billion in damage, marking the eighth consecutive year that eight or more natural disasters resulted in billion-dollar level damage. As climate change continues to warm the atmosphere, natural disasters are only expected to increase in frequency and severity and home insurers are lagging behind. Rising construction costs lead to costlier repairs that many home insurers are not prepared to cover.
When insurance policies do not stretch far enough to cover disaster-related damage, homeowners may find themselves covering repair costs themselves. The Federal Emergency Management Agency (FEMA) will distribute funds in presidentially-declared disaster areas but depending on the extent of the disaster it may take a considerable amount of time for the funds to be distributed. In less serious disasters, FEMA distributes even less and homeowners have to rely on insurance and savings to rebuild. The cost of reconstruction can eventually lead to missed mortgage payments and negatively impact the mortgage market when homeowners default on their loans.
Senior leader analytics at CoreLogic, Amy Gromowski commented, “Underinsurance issues can cause financial devastation for property owners, artificially low coverage limits for insurance carriers, and increased loan delinquencies. Homeowners who experience natural hazard events, such as the California wildfires, are often struck by personal and financial devastation and many aren’t able to rebuild their homes, which prolongs the region’s recovery and often causes homeowners to default on their mortgages.”
According to CoreLogic, 110,000 Southern California homes are at risk of wildfire damage, with an estimated reconstruction cost of more than $46 billion. Along the Gulf Coast and Northeast Atlantic, CoreLogic identified 1.1 million homes at risk of storm surge flooding. In Florida, the estimated reconstruction cost exceeds $240 billion. In Oklahoma, over 1.3 million homes are at risk of tornado damage with an estimated reconstruction cost of $257 billion.
To accommodate rising reconstruction costs, insurance companies need to revisit coverage and policies to ensure homeowners will be able to rebuild damaged homes. Otherwise, chief economist at CoreLogic, Frank Nothaft, explained, “The disruption of a family’s regular flow of income and payments, as well as substantial loss in property value, can trigger mortgage default; especially if homeowners are underinsured and cannot afford to rebuild.”