Summer heatwave leads to higher premiums, stricter underwriting
Planet Earth recorded the hottest day on record on Sun., July 21, 2024.
With record temperatures impacting much of the U.S. this summer, insurance carriers are rethinking risks associated with extreme heat.
On Sun., July 21, 2024, the planet posted its hottest overall day on record, according to the European Union’s Copernicus Climate Change Service. The daily global average temperature reached an all-time high of 17.15 degrees Celsius, surpassing the previous record of 17.09 degrees Celsius set the day before on July 20, 2024, the data showed.
Similar to FEMA’s decisions regarding developments near floodplains, insurers are reevaluating risk models to account for the increased frequency and severity of events driven by extreme heat, Managing Director for VIU by HUB, Travis Hodges, told PropertyCasualty360 in an interview.
“We’re seeing higher premiums and stricter underwriting standards as a result of these reassessments to cover the rising costs associated with weather-related damages and the heightened risk of property damage,” he said. “States experiencing hotter temperatures and natural disasters like hurricanes and tornadoes are going to see a significant increase in home and property insurance premiums if they haven’t already.”
A PowerSetter survey of 2,000 Americans revealed 75% of households expected their utility bills to rise this summer, with 73% saying it will put a strain on their household finances. Meanwhile, 31% from the survey said they will cut their grocery budgets, 32% said they will spend less on entertainment, and one in five said they will cancel their summer vacation plans to pay bills.
Hodges said heat waves can also strain infrastructure, leading to power outages and increased repair costs, which further complicates the insurance landscape.
“Customers may experience increased premiums, higher deductibles and more limited coverage options,” he continued. “Homeowners may also face unexpected financial burdens if their policies do not fully cover the damages caused by extreme heat.”
Typical home and property insurance policies cover damage from disasters like fire, windstorms, and hail. They often include coverage for structural damage to the home, personal property inside the home, and liability for accidents that occur on the property.
“However, coverage for specific risks like flood or earthquake damage is usually not included in standard policies and may require separate endorsements or specialized policies,” Hodges said.
“Extreme heat is a leading indicator for other weather events like thunderstorms, lightning, and hail,” he added. “When the weather becomes extreme, it shortens the life expectancy of the materials that make up a home. Roofing materials deteriorate, wooden structures crack or warp, and siding and insulation gets damaged. Heat is also what we call an approximate cause. It can strain air conditioning systems, leading to mechanical failures or increased maintenance needs, as well as exacerbate issues with existing structural vulnerabilities, such as foundation settling or erosion, further compromising the integrity of buildings.”
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