Welcome back to the Net Worth Podcast.
Speaker 2: This week we are diving into a topic that affects nearly every homeowner, aspiring homeowner, and really anyone building their financial future.
Speaker 1: The surprising impact of climate risk on home insurance and what it all means for your net worth.
Speaker 2: This deep dive is based on insights from the latest edition of Noyack Wealth Weekly, which you can read in full on our website.
Speaker 1: Check out the full edition on our website, wearenoyack.com.
Speaker 2: It’s really quite something, isn’t it?
Speaker 1: how fast things are changing for home orders.
Speaker 2: People are saving diligently, doing everything right for their dream home, putting together that down payment, only to hit this, well, unexpected and frankly, massive roadblock, soaring property insurance premiums.
Speaker 1: It’s really not just an added cost anymore, is it?
Speaker 2: It feels like it’s genuinely reshaping what’s affordable and directly hitting people’s ability to build net worth through owning a home, or even keeping the value they have.
Speaker 1: It really is a fundamental shift.
Speaker 2: And what’s particularly striking is just the speed, how quickly these costs have gone up.
Speaker 1: We’re seeing a significant squeeze, really, across the board.
Speaker 2: It doesn’t matter if it’s a modest starter home or a luxury property.
Speaker 1: The numbers our team put together for this edition, they really highlight this dramatic fast shift.
Speaker 2: Yeah, the raw figures are pretty stark when you look at them for modest homes, for example, the national average.
Speaker 1: It’s floating between what, $750 and $2,500 a year now.
Speaker 2: that’s just the average.
Speaker 1: The really eye-opening part is costs are at 13 % since 2020.
Speaker 2: And that’s after adjusting for inflation.
Speaker 1: That’s not a small bump.
Speaker 2: That really eats into your disposable income and your ability to save or invest elsewhere.
Speaker 1: It hits your net worth potential.
Speaker 2: And if you drill down into those numbers, the regional differences are just huge.
Speaker 1: It almost feels like it’s creating sort of a two-tiered housing market.
Speaker 2: You you’ve got states like Hawaii and Delaware still pretty low, maybe 500, 800 bucks a year.
Speaker 1: But then Oklahoma.
Speaker 2: Nearly $5,900 on average.
Speaker 1: Louisiana over $5,700.
Speaker 2: Nebraska over $5,100.
Speaker 1: That kind of difference forces you to think really critically about, well, where you live.
Speaker 2: And the financial hit homeowners are taking based purely on geography and what that means for home equity as a reliable asset.
Speaker 1: Is it reliable everywhere?
Speaker 2: Maybe not.
Speaker 1: That is a massive, massive difference depending on location.
Speaker 2: And that gap…
Speaker 1: It just gets wider when we look at luxury homes, right?
Speaker 2: We’re not talking small percentage increases there.
Speaker 1: Oh, not at all.
Speaker 2: Our analysis for this edition shows premiums for homes with, a $1.5 million mortgage or more.
Speaker 1: They didn’t just rise.
Speaker 2: They jumped a staggering 130 % between 2020 and 2024.
Speaker 1: Wow, 130%.
Speaker 2: Yeah, I mean, think about that.
Speaker 1: More than doubling in just four years.
Speaker 2: So if you own a high-end place in a coastal area or maybe somewhere like Aspen, parts of LA, Florida, you might have seen your insurance costs triple.
Speaker 1: A policy for, a $5 million home could easily cost 20%, 30 % more per year.
Speaker 2: And that might add, you know, over a million dollars to your potential rebuilding costs if something happens, assuming you have enough coverage.
Speaker 1: That directly hits the net value of that asset.
Speaker 2: It erodes its value, makes it harder to sell, is your overall net worth hard?
Speaker 1: OK, so these are really incredible surges.
Speaker 2: What’s fundamentally changed?
Speaker 1: Why such a dramatic increase in just a few years?
Speaker 2: It feels so sudden for a lot of people.
Speaker 1: Well, our research for Noyack Wealth Weekly points to four main drivers, and they’re all kind of tangled together.
Speaker 2: First, and this is probably the biggest one, it’s climate change.
Speaker 1: We’re just seeing more frequent, more severe extreme weather, hurricanes, floods, wildfires.
Speaker 2: The insured losses from these events hit, I think it was, $125 billion in 2022 alone.
Speaker 1: $125 billion, just in one year.
Speaker 2: Yeah, a huge number.
Speaker 1: And those massive payouts.
Speaker 2: Well, the insurance industry has to recover those costs somehow.
Speaker 1: So it’s a direct cost recovery.
Speaker 2: But is there more to it?
Speaker 1: Are they just trying to catch up, or are they pricing in future risk too?
Speaker 2: Both, really.
Speaker 1: They’re recovering past losses, but definitely re-evaluating future risk much more aggressively.
Speaker 2: Then, number two, you’ve got inflation.
Speaker 1: That’s played a huge role.
Speaker 2: Construction materials, labor costs, they’re up about 40 % since 2019.
Speaker 1: 40%, OK.
Speaker 2: So rebuilding a damaged home is just way more expensive now, which means you need more coverage.
Speaker 1: And that pushes premiums up.
Speaker 2: Third, there’s something called reinsurance costs.
Speaker 1: This is kind of like insurance for insurance companies.
Speaker 2: ah They buy coverage from reinsurers to protect themselves from huge losses, like after a major hurricane.
Speaker 1: As reinsurers pay out more globally due to climate events, their prices go up, and those costs get passed down the chain eventually to you, the homeowner.
Speaker 2: It adds another layer.
Speaker 1: And the last one, those regional disparities you mentioned earlier.
Speaker 2: That’s not just higher prices, it’s more fundamental.
Speaker 1: Exactly.
Speaker 2: It’s not just cost.
Speaker 1: It’s about availability, scarcity even.
Speaker 2: In some high risk areas, insurers are actually pulling out or drastically limiting the coverage they offer.
Speaker 1: So homeowners are left with fewer options, maybe none that are affordable or adequate.
Speaker 2: And try getting a mortgage without decent insurance.
Speaker 1: It’s often impossible.
Speaker 2: So that directly hits property values, makes things less liquid and destabilizes the market in those places.
Speaker 1: OK, this is where it gets really critical, especially when we tie it back to your net worth.
Speaker 2: These rising premiums, they aren’t just an extra bill.
Speaker 1: They seem to be fundamentally changing the housing market itself and um how people build wealth through property.
Speaker 2: Yeah, when you connect the dots, it’s clear why this matters so much for your net worth.
Speaker 1: Our analysis for this edition points out several key impacts.
Speaker 2: First, just basic housing affordability.
Speaker 1: It’s getting tougher.
Speaker 2: High premiums make owning a home less attainable, especially for first time buyers.
Speaker 1: And renters feel it too, right?
Speaker 2: Landlords pass on those insurance hikes through higher rent.
Speaker 1: So that directly eats into your disposable income.
Speaker 2: Less money to save, less to invest, slower wealth building.
Speaker 1: So it’s the total cost of ownership, not just the mortgage that’s becoming prohibitive.
Speaker 2: And then there’s the direct hit to the value of the homes themselves.
Speaker 1: Absolutely.
Speaker 2: We’re seeing falling property values in certain areas already.
Speaker 1: And that’s a direct hit to home equity, which for many people is their single largest asset, the core of their net worth.
Speaker 2: We’ve seen research showing just a $100 increase in annual premiums.
Speaker 1: that can knock up to $25,000 off a property’s value in flood prone zones.
Speaker 2: $25,000 for 100 bucks more a year.
Speaker 1: So think about that if you want to refinance or tap into that equity for something important.
Speaker 2: That value might just not be there anymore.
Speaker 1: And that ripples out, right?
Speaker 2: Lower property taxes for the local area, less funding for services.
Speaker 1: That’s a huge potential loss from what seems like a small monthly change.
Speaker 2: And it must make selling harder too.
Speaker 1: Definitely.
Speaker 2: We’re seeing stalled home sales and lower market demand.
Speaker 1: Properties and high risk areas just sit on the market longer.
Speaker 2: Buyers look at the potential insurance costs or struggle to get coverage at all and they just walk away.
Speaker 1: Our data for this edition shows listings and climate vulnerable spots stay on the market way longer.
Speaker 2: Less demand means lower prices, which erodes equity for current owners.
Speaker 1: Makes it hard to move, hard to access that wealth.
Speaker 2: Imagine needing to relocate for a job and finding your biggest asset is basically stuck.
Speaker 1: And on top of it all, there’s the insurance scarcity and unpredictability.
Speaker 2: It’s not just expensive.
Speaker 1: You might not even be able to get it or keep it.
Speaker 2: Exactly.
Speaker 1: Insurers are pulling back from high risk regions.
Speaker 2: We’re seeing non renewals, outright denials for new policies.
Speaker 1: That creates huge financial uncertainty for homeowners.
Speaker 2: How can you plan long term?
Speaker 1: How can you rely on your home as a stable asset if you don’t know if you can insure it next year or if a buyer can insure it?
Speaker 2: Which brings us to a really crucial point for net worth.
Speaker 1: the sheer asset value at risk.
Speaker 2: Analysts are actually warning that millions of homes, especially in places like Southwest Florida, could lose 20 to 40 % of their market value.
Speaker 1: 20 to 40%.
Speaker 2: In the next five or six years.
Speaker 1: Primarily driven by these soaring insurance costs.
Speaker 2: That’s a potentially massive destruction of asset value for homeowners.
Speaker 1: A direct hit to the balance sheet.
Speaker 2: That’s wow.
Speaker 1: A sobering thought.
Speaker 2: Almost like a silent wealth drain.
Speaker 1: And it’s actually pushing people to move, which is a huge societal shift itself.
Speaker 2: Yes, our findings for this edition highlight a clear trend.
Speaker 1: Regional migration.
Speaker 2: People are actively moving towards what we’re calling climate havens, regions seen as having lower immediate climate risks, and importantly, more stable insurance costs.
Speaker 1: This isn’t just a trickle.
Speaker 2: It’s starting to shift population patterns, which then drives up demand and prices in those safer areas.
Speaker 1: So where you choose to live, where you put your primary asset, That decision now has a huge potential impact on appreciation and your net worth.
Speaker 2: It really forces you to consider climate risk as a fundamental part of any real estate decision.
Speaker 1: OK, so given all this, what does it mean for you, the listener?
Speaker 2: What can you actually do in your financial planning right now?
Speaker 1: Obviously, big systemic changes are needed, but our analysis in Noyack Wealth Weekly also lays out some immediate practical steps, things you can do to manage these costs and protect your net worth.
Speaker 2: Exactly.
Speaker 1: There are definitely proactive things you can do, starting with the basics.
Speaker 2: You absolutely have to shop around for coverage.
Speaker 1: Don’t just let your policy auto-renew.
Speaker 2: Talk to independent agents.
Speaker 1: They can compare quotes from different companies.
Speaker 2: Get the best combo of coverage and place for you.
Speaker 1: Sounds simple, but so many people skip it.
Speaker 2: Right.
Speaker 1: It’s basic, but crucial.
Speaker 2: What else?
Speaker 1: What can directly impact the premium amount?
Speaker 2: Well, you could consider raising your deductible.
Speaker 1: That lowers your monthly premium.
Speaker 2: But, and this is critical, You absolutely need a solid emergency fund.
Speaker 1: You have to be able to cover that higher deductible if you need to make a claim.
Speaker 2: It’s a trade off.
Speaker 1: Another fairly easy one is to bundle policies.
Speaker 2: Combine your home and auto insurance with the same company.
Speaker 1: You can often save maybe up to 20 percent, sometimes more.
Speaker 2: OK, those are about managing the cost.
Speaker 1: But our work also really stressed making your home itself tougher, more resilient, which sounds like a win win, protects the asset and potentially lowers costs.
Speaker 2: It really is a win win.
Speaker 1: Investing in resilience is probably one of the most impactful things you can do.
Speaker 2: It protects your physical property, your home, and it can significantly cut your premiums, sometimes 25 % or more, because you’re actively lowering the risk for the insurer.
Speaker 1: So think about storm protection.
Speaker 2: Hurricane shutters, impact resistant windows, maybe reinforcing the roof, or fireproofing, things like ember resistant vents, non-combustible siding, clearing brush if you’re in a wildfire zone, flood mitigation.
Speaker 1: Elevate your utilities, improve drainage around the property.
Speaker 2: These upgrades protect your home, boost its long-term value, and make it cheaper to insure.
Speaker 1: And technology can help here too, right?
Speaker 2: Beyond just the physical structure.
Speaker 1: Oh, absolutely.
Speaker 2: Adopt smart technology.
Speaker 1: Think smart fire alarms, water leak detectors, maybe security sensors.
Speaker 2: These don’t just make your home safer and give you peace of mind.
Speaker 1: Many insurers now offer discounts for these systems because they can actually prevent or lessen the severity of claims.
Speaker 2: It’s about using tech smartly to protect your home and ultimately, your finances.
Speaker 1: So those are actions homeowners can take directly.
Speaker 2: But this edition also talked about broader strategies.
Speaker 1: Thinking bigger picture about protecting your net worth and this well this changing environment.
Speaker 2: Yes absolutely.
Speaker 1: First you really need to factor climate and insurance trends into where you buy.
Speaker 2: Don’t just look at the house price or the schools.
Speaker 1: Research the long term insurance outlook for that specific area.
Speaker 2: Understand the risks.
Speaker 1: It’s about making a smarter, more informed, long-term financial decision.
Speaker 2: You also need to carefully evaluate the premiums, yes, but also the policy terms and the stability of the insurance company before you commit.
Speaker 1: Right.
Speaker 2: Make sure they’ll actually be there if you need them.
Speaker 1: Exactly.
Speaker 2: And finally, maybe most importantly, build a strong financial buffer and diversify your assets.
Speaker 1: Don’t have everything tied up in home equity, especially if it’s in a vulnerable area.
Speaker 2: Spreading your risk is key.
Speaker 1: reduces your exposure.
Speaker 2: It’s also kind of exciting in a way to see innovation trying to tackle these issues.
Speaker 1: Our team highlighted some interesting emerging solutions.
Speaker 2: Yes, there are some really creative ideas bubbling up like parametric insurance.
Speaker 1: This is different.
Speaker 2: It pays out automatically based on a predefined trigger.
Speaker 1: So instead of a long claims process after a storm, it might pay out if, say, wind speeds hit 100 mile per hour in your zip code or if rainfall hits a certain level.
Speaker 2: Oh, wow.
Speaker 1: So much faster relief.
Speaker 2: Potentially, yes.
Speaker 1: Gets money to people quickly, less hassle.
Speaker 2: It avoids arguments about damage assessment.
Speaker 1: Then there’s AI-driven policies.
Speaker 2: OK, how did that work?
Speaker 1: Well, imagine AI analyzing tons of data satellite images of your roof condition, decades of local weather, wildfire fuel nearby.
Speaker 2: It allows insurers to assess risk much more precisely, house by house.
Speaker 1: So if you install those hurricane shutters, the AI can quantify that reduced risk and maybe offer you a better premium almost instantly.
Speaker 2: It rewards resilience in more direct way than older models could.
Speaker 1: And there’s also talk about community-based insurance programs.
Speaker 2: Like pooling risk locally.
Speaker 1: Kind of.
Speaker 2: Local governments or community groups exploring ways to pool resources, maybe create their own insurance mechanisms to offer more stable, affordable rates locally.
Speaker 1: It reflects this growing sense that we need new tools, new approaches to manage risk in this changing climate.
Speaker 2: So the bottom line from our recent analysis is pretty clear.
Speaker 1: Rising property insurance costs are really reshaping the housing market.
Speaker 2: They’re creating serious hurdles, especially for first-time buyers and anyone trying to build net worth real estate.
Speaker 1: And for investors, the focus really has to shift towards resilient building, towards those climate haven markets, if you’re looking for long-term stability.
Speaker 2: Yeah, in today’s world, insurance, it’s not just another bill.
Speaker 1: It’s really a cornerstone of your financial resilience.
Speaker 2: These trends threaten both the immediate value of your property and your long-term net worth accumulation.
Speaker 1: But by taking action now, by understanding these shifts, by planning proactively, you can take steps to safeguard your financial future.
Speaker 2: You can build stability, opportunity.
Speaker 1: That’s really how we can turn these challenges into, well, maybe not opportunities, but manageable risks.
Speaker 2: Remember to subscribe to Noyack Wealth Weekly on our website wearenoyack.com.
Speaker 1: to read the article behind today’s conversation and to get our weekly newsletter straight in your inbox.
