Priced Out: Climate Change, Home Insurance, and the People Stuck in the Middle

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CHAPTERS

02:17 How Climate Change Is Raising Insurance Costs

06:04 Hazards Driving Insurability Concerns

07:38 Insurance Costs as a Driver of Migration

09:49 Climate Entrapment and Equity Issues

15:13 Policy Solutions: Adaptation, Building Codes and Wraparound Services

18:52 The National Flood Insurance Program: Origins and Trade-offs

26:00 Hurricane Sandy: Lessons in Recovery and Relocation

TRANSCRIPT

[00:00:03.140] 

For many people in high-income countries, the notion of climate migration may seem pretty remote. If your day-to-day life is not connected to the natural environment, it might seem unlikely that climate change could undermine your livelihood. Disasters and extreme weather may be on the rise, but infrastructure and adaptation defenses are much more advanced in in many wealthy countries than in other parts of the world. A lot of the time, discussions about climate change and migration seem like they're happening someplace else. Except, that is, when it comes to your pocketbook. Specifically, I'm talking about insurance. In countries like the US, the effects of climate change are very clearly having an impact on the prices that people pay to insure their homes and businesses, and whether that insurance is even available at all. So even if your home feels sturdy, the increasing price of protecting it or the inability to do so might be incentive to move someplace else. Welcome to Changing Climate, Changing Migration. This is a podcast from the Migration Policy Institute that explores how climate change is affecting the way that people move around the Earth. I'm Julian Hattem. I am your host and I'm the editor of MPI's online magazine called the Migration Information Source.

[00:01:25.060] 

Today we are talking about insurance, how climate change is affecting people's premiums and deductibles, or even their ability to have a coverage option to choose from, and how that connects to their likelihood to relocate. My guest is Talley Burley. She is the senior manager for climate risk and insurance at the Environmental Defense Fund. She also previously worked for New York City, where among other things, she worked on resilience issues and rebuilding. After Hurricane Sandy. Talley, thank you so much for coming on the podcast today. It's great to have you.

[00:01:58.620] 

Thank you for having me. I'm excited to be here.

[00:02:01.510] 

So can you start by walking us through some of the main ways that climate change is reshaping insurance in high-income countries? If you own a home or another kind of property, is climate change very clearly making insurance both more expensive and/or less available?

[00:02:17.120] 

It is. So what we're seeing right now is, as we're more intense and frequent climate-driven disasters are occurring, insurers are paying out more claims. They're paying out more claims more frequently. The size of those claims is growing, and it's placing a lot of stress on the market. Every year, the insurance industry puts out kind of an estimate of how many, how large their damages were. And typically they're, you know, somewhere between like $90, $95 billion per year. Sometimes more. A few years ago, the reinsurer Swiss Re estimated that about 5 to 7% increase in natural hazard-related damages since the 1990s. And what this does—

[00:03:05.370] 

this is the US, to be clear, right?

[00:03:07.100] 

This is globally.

[00:03:08.620] 

Okay.

[00:03:09.120] 

This is actually a global number. Um, and what, in order to respond to that, and those strains, the insurance industry will raise the cost of insurance. Insurance is supposed to be a risk signal, and in order to have the risk of the insurance best priced, they have to raise the cost of insurance. The riskier the thing that they are insuring, the more expensive the insurance should be. And so as risks are going up, the cost of insurance is rising. But to your point earlier, one of the things we're also seeing is insurers actually pull back coverage. Uh, in some cases they may be looking at specific hazards and saying, you know what, we're seeing a lot of damages, a lot of concentrated damages, and we don't feel comfortable providing coverage for that. In the United States, we've seen that in places like the Southeast where wind coverage often is excluded from policies. Flood insurance in the US is particularly excluded from, from most policies. And so those coverages might pull back. And then in particularly risky areas, and we've seen this in places in the US like California, Louisiana, Florida, insurers may be exiting markets entirely.

[00:04:24.680] 

The risk is just too great. They're concerned. And so these strains on the insurance market and these changes have a lot of dynamics for our overall economic health. Insurance underpins all of our financial markets. You can't get a mortgage without getting insurance. You can't buy a car without getting insurance. And so if there are strains and breakages in the market, it has spillover impacts. And insurance is also the main resource we have available to help us rebuild after a disaster. And so if we can't find insurance that is affordable to us or we can't get coverage at all, that leaves us vulnerable, having to either try and pay out of pocket to defer other important expenses, rely on federal disaster assistance, which is often slow, doesn't always cover all of the needs. So there are lots of different ways that insurance in the midst of the changing climate is further straining household budgets, finances, and our overall kind of global economy as well.

[00:05:21.320] 

That is a great rundown. And you mentioned like 5 points that I want to get to throughout the course of this conversation. Uh, but first, you talked about a little bit about different kinds of hazards and that are increasingly insurable or not— wind, floods, uh, in some places where that's happening, especially in the Southeast, California, in the US. Um, can you talk a little bit more about that? Are there certain areas and/or certain risks that are particularly expensive and therefore increased insurance, um, costs and/or lack of availability a lot, and to what extent is this a response to natural disasters, things like hurricanes, wildfires, versus slower onset impacts like sea level rise, or, uh, I don't know, does that impact insurance markets at all as well?

[00:06:04.740] 

It's largely, in my view, these large catastrophic disasters and the fact that we're seeing more of those more frequently as opposed to smaller scale events. The types of hazards where we're seeing a lot of concern right now Um, you know, wildfire in particular is one, and a lot of the hazards that are causing concern are ones that aren't well understood and where they're really unpredictable. It's really hard to track and know exactly how a specific event is going to unfold. That's part of how we ended up with a National Flood Insurance Program to begin with. There was a lot of concern from the private market that floods were really hard to predict, really widespread. And so those are sort of the determinants. But right now we're just seeing so much change so quickly and so much growing risk that that combination of factors is, is part of what's driving the concern with insurability coupled with all of the other economic factors. We have inflation, we have construction supplies. These are all things that also influence insurance costs. And so we have these compounding challenges that in addition to climate change.

[00:07:16.990] 

So our focus on this podcast is about the nexus between climate change and human movement. Can we clearly draw a connection between these insurance issues and human mobility? I mean, are there significant numbers of people for whom these issues are unsustainable and therefore they are pressured to move to a place where insurance is either more widely available or cheaper?

[00:07:38.720] 

At this point, it's somewhere between we don't know yet and there isn't really a lot of evidence. And I say that to say there's There's a lot of anecdotal research and surveys and conversations that are pointing to a lot more people are talking about insurance. I saw a statistic from somewhere that was like 70% of people are now thinking about insurance when they go to buy a home and the cost of that insurance. But is that the driver that is making them change decisions about where they live or is one of many factors. I think we're still seeing people make choices about their housing decisions that are driven by, based on school districts and commute times and all of the other amenities and costs that weigh into housing choice. Disaggregating insurance as a part of that is really, really difficult. I have a colleague at EDF who is doing some research on the intersection of mortgage markets and insurance and into mortgage delinquencies, trying to see if there was any sort of correlation or causation between rising insurance or lack of insurance insurance and mortgage delinquencies or people choosing to relocate. And the data just isn't robust enough yet.

[00:08:57.190] 

There isn't a lot of really granular data to really drive into those specific connections. So we think it might be happening, but the research just isn't, isn't there yet.

[00:09:07.770] 

Yeah. All right. Um, but also I want to talk about people who cannot move or do not move. I mean, you know, is there a risk or is this already a reality of, you know, a large number of people who whether or not they can move or do move, like are stuck and basically trapped in a climate-threatened place. Meanwhile, they are having to pay higher and higher costs to be able to do so, or else they kind of go without insurance and risk everything, risk losing everything if in the event that a disaster strikes. You talked about this a little bit at the top, I guess, but can you go into that a bit more detail? That seems like it creates kind of a serious equity issue, right, where some of the poorest people are left in the most dangerous, least insurable places.

[00:09:49.660] 

There are certainly a lot of equity issues when we look at rising and current insurance costs. I think that there are kind of different permutations of what we think might happen as insurance costs rise that may impact different populations in different locations and with different resources. Differently. One of those is to the point that you're making of as costs rise, as insurance costs become more expensive, it's further straining already strained budgets of people living paycheck to paycheck, and they don't necessarily have savings that are going to allow them to move and relocate. And so they're stuck. And if they don't have the resources to move or relocate, they also don't have the resources to harden their home and help to adapt their community. And so that risk is really prevalent. They may continue to pay really high insurance costs, or they may just get rid of their insurance policy altogether and be very, very vulnerable when the next disaster happens. What we also hear happens is that as costs rise, people feel like they're being forced to move. Their insurance costs are going up, and so they're making decisions to say, my only option is to relocate.

[00:11:08.500] 

Kind of in the same way that as rents go up, people feel like they're being outpriced of their apartment or of their housing unit, they start to move. What we don't know in those situations is, are people spending all of their savings to be able to make that move and then again are left with few resources to adapt? I think in both cases you have households that are particularly stuck and without a lot of support or options in where they live and they have a lot of acute risk. Wealthier communities potentially have the option to adapt in place, to self-insure, to more frequently cover damages on their own absent of insurance. And I think these are all things that probably are happening collectively as we see climate change occur. What we know from post-disaster work, getting back to the entrapment issue though, is a lot of households who have experienced chronic climate stressors and shocks might be interested, particularly after a disaster, in moving, but feel like they do not have the financial resources to find another home that keeps them connected to their community and that is affordable to them and meets their needs.

[00:12:26.180] 

And so It's definitely a concern, but I think kind of all of these situations are concerns and equity issues that have different implications that we need to be thinking about in the context of mobility insurance and adaptation more broadly.

[00:12:41.660] 

Just to your last point, I mean, a recurring theme on this podcast is that people do not want to move for the social and historical and personal and a kajillion other reasons that you just mentioned, right? People like their home. It's their home. It's a very powerful thing. I sometimes, I hear the term blue lining sometimes used in this context as a sort of update of the race-based housing discrimination policies or set of policies known as redlining. Can you very briefly just explain what blue lining is? I mean, is that some of the things that you were just talking about?

[00:13:13.010] 

I haven't really used the term blue lining very often. To me, this sort of falls into the space of climate gentrification in a lot of ways. I think there is a, there's an aspect of sort of the previous redlining systems that kind of come in when people are stuck or they don't have access to resources to adapt. But it sort of feels like a gentrification issue in my lens, which isn't to say it's not blue lining. It's just not a term that I use as consistently, though I've heard people talk about it.

[00:13:49.350] 

And climate gentrification, very briefly, is the idea that poorer people, lower income households get pushed out of neighborhoods and then because they cannot afford to adapt, and then higher income households can adapt, or higher income households move to more climate safe areas that are generally lower income, previously lower income, and then push out poor lower income households from those neighborhoods, right? That's a mangled explanation.

[00:14:12.220] 

Yeah, yeah, yeah, yeah. I think there are lots of different versions of how people are defining it, but, but yeah, it's— it— and generally That's, that's what it is.

[00:14:20.900] 

Yeah. Um, I want to kind of turn to policy a bit, and particularly how to— I mean, so like, what do you do, right? You talked, uh, you know, a couple questions ago you talked about the, the issue of, you know, entrapment, or people getting stuck. From a policy perspective, like, you probably don't want to force insurers to continue to provide coverage, especially cheap coverage, since that could keep people in dangerous, vulnerable areas. And encourage new people to come there too. But you probably, to your point, it also seems bad for people to either, you know, be forced to pay more money for insurance, risk going without it, or have to leave their homes. That is their home because it's too expensive to stay in place. So like, what do you do if, you know, if risk, if insurance is, you know, a risk signal, but it's also has a real— it's not just a signal that has a day-to-day impact on your pocketbook. Like, what is, what is the policy role here, I guess? What's the solution?

[00:15:13.220] 

There's a lot that's being explored right now. I think insurance is a hot button issue. And so there's a lot of policy innovation happening and I think really interesting collaborations and ideas that are, that are coming up. But for me, there are kind of like 3 buckets that are the things that we need to really be doing. The first and foremost is funding and financing of adaptation that needs to happen at the home scale, at the community scale. We have an insurance crisis, but really we have a risk crisis, and the only way to address that is to be adapting our homes and communities. If we can do that, that can help with affordability. That can potentially bring insurers who may have exited the market back. And we've seen versions of this in places like Alabama where they have a fortified roof program. This is a strong roof that'll stay on during hurricanes, really reducing the amount of damages. This is something insurers are excited about. The state investing in that has helped to potentially stabilize their insurance market and allow insurers to continue staying. Meanwhile, we've seen other strains in neighboring southeastern states. Communities like Paradise in California, which was devastated by a wildfire a number of years ago, investing in adaptation and working very closely with the insurance sector has ultimately brought insurers back to an area where it was not original, it wasn't being offered anymore.

[00:16:45.080] 

And so investment in adaptation is like first and foremost the thing that we need to be doing. And without investment in adaptation, we're kind of putting a bandaid and kicking the can down the road. The second piece of this is really thinking about our building codes in our land use, which is, you know, a bit of investing in adaptation. But this is thinking about all of the new homes that are going to be built. We need to make sure that we're building them and putting them in places that aren't as risky and designed in a way that they're gonna be safer into the future. That way we're avoiding a repeated cycle of the insurance issues that we're seeing in existing communities. And then the third piece of this to me comes down to recognizing the needs of households, particularly vulnerable households, and thinking about policy and adaptation as a wraparound service. Uh, that means providing case management, financial counseling, legal counseling to help people navigate what is like a really complex series of decision-making, a lot of resources they might not have, and coupling that with things like down payment assistance and moving expense, you know, covering moving expenses so that they can actually relocate and do so with dignity in a way that's stabilizing their existing housing, um, but also allowing them to, uh, have an improved quality of life and not a further downward spiral because they're, you know, stuck in place or they're, uh, stuck, you know, feeling like it's risky.

[00:18:23.400] 

You, um, I think you mentioned earlier on the US National Flood Insurance Program, which I— to me kind of reads as a lesson in sort of unintended consequences. Can you provide like a super incredibly brief overview of the US National Flood Insurance Program, at least kind of historical, why it came about and why it and programs like that might ultimately artificially incentivize people to live in vulnerable, dangerous areas? if that's not—

[00:18:51.210] 

Yeah. So the vast majority of flood insurance in the United States is provided through the National Flood Insurance Program, NFIP. It exists because private insurers pulled out of the flood insurance game in the early 20th century. There were a lot of catastrophic floods in the 1920s, 1930s, particularly along the Mississippi River. One actually wiped out like half of GDP. I mean, like really sizable events. And insurers said to themselves, again, this is, this is too risky, it's too widespread, it's too unpredictable. We're not going to provide coverage. And for about 30 to 40 years, the only way that people had any sort of financial assistance to help them rebuild after a flood was through federal disaster assistance, effectively ad hoc federal disaster assistance every time that there was a flood. And that was the only way that people were able to get financial support. So the NFIP was created to fill that void, and that is why it exists. there are properties where it's required if you have a mortgage in a high-risk floodplain in the United States. Um, it's also a bit of a, like a unicorn program because it's not just insurance, it's also a mapping program.

[00:20:02.360] 

It is the baseline for a lot of our flood maps in the United States. It sets the minimum building code and floodplain management land use standards that communities need to adopt. It provides mitigation grants to help people reduce flood risk. So it's kind of doing the things that we need to do but it is not a perfect program. Uh, we've learned a lot about flooding and flood risk since NFIP was created. There have been a lot of calls over the years to, uh, modernize the NFIP, to think about affordability programs for the most vulnerable who are never gonna be able to afford an insurance policy on their own, to update the flood maps, to change, uh, floodplain management standards. When the program was created, you know, there were— the pricing of insurance was done in a way that I think gets to your question about the unintended consequences. A lot of NFIP prices were originally like artificially low. They weren't risk-based. And so you could get a fairly affordable flood insurance policy in a high-risk flood zone and high-risk flood zone. And that's one of the main criticisms that the program had had over for a number number of years.

[00:21:18.920] 

That has begun to change over the last 10 to 15 years. A lot of those subsidies have gone away, and NFIP is moving to a risk-based pricing model that's much more in line with the private sector. And so I think we'll start to see insurance prices, flood insurance prices, better reflect actual flood risk. Floodplain management standards, haven't necessarily been updated to reflect growing risk and what we know about flooding today. And communities may or may not necessarily be adopting higher standards to better reflect how that risk has changed. And so the other unintended consequence is like, you might be building in a risky area partly because the underlying information that you're using is outdated. And so the, these are kind of the, trade-offs. I think the piece of this that I get a little bit nervous about when we critique the NFIP, and it certainly needs a lot of changes to it, and EDF, we are at the table advocating for some of those changes, is we also can't forget the value of flood insurance and the fact that a lot of the homes and buildings that are in the floodplain predate the NFIP. These are homes that have existed for, you know, over a century at this point.

[00:22:47.980] 

People have been living in them and they're gonna continue to live in them. And so we have to make sure that we're thinking about those individuals as well and their financial needs, and of which insurance is an important, plays an important role. And we can kind of do all of these things. It's hard to balance though, affordability and reducing risk and insurance. Like, those two things, they're, they're difficult conversations.

[00:23:14.600] 

Yeah, yeah, yeah. Uh, that's great. Thank you very much. Um, and that's very good caveats as well. We've been mostly talking about the US, but, uh, you started out talking about some global numbers, about $95 billion a year in, uh, disasters caused. Um, And I want to make sure that we continue to have a global perspective too here. I guess, to what extent is this dynamic unique to the US, these insurance issues, uh, or are they truly global, especially across, you know, high-income countries?

[00:23:45.600] 

So my work has largely focused in the US. What I will say is that regardless of the room that I'm in and the people I'm talking to, the— a lot of these are the questions that everyone's asking. Everyone's asking questions about insurance and insurability. They're asking questions about the impacts that that's going to have on housing and where people live and whether or not they relocate. The research question that I'm actually interested in that I don't think anyone has done yet, and if they have, I would like to see it, is a deeper comparative analysis across countries of how these dynamics are playing out. Um, as it specifically, as it relates to mobility and migration. Outside of a post-disaster context. A lot of research exists on like what disasters do to influence people's willingness or eagerness to relocate out of risky areas, but we don't have as much on those kind of climate stressors and how that might play differently from country to country where governance structures are different, where funding structures are different, where social welfare programs look different, and how those things might influence some of these dynamics. So that's, that's research I would like to see to kind of better understand the global landscape.

[00:25:01.180] 

Dear listener, if that's you, give us a holler, let us know, and get in touch. Love to hear about your work. We're running out of time, but I guess I want to close with a question about recovery and what we do after disaster strikes. As I mentioned at the top, you used to work for the New York City Mayor's Office, and among other things, you helped with the city's recovery after Hurricane Sandy. Which for those who might not remember was a big hurricane back in 2012, did something like $19 billion of damage in the city, inundated something like 90,000 buildings. Either from an insurance perspective or more generally, can you talk about lessons that you learned during that experience and lessons that might help people either stay in their homes or facilitate a voluntary dignified relocation to someplace new? And because in particular, I believe you helped design a program to buy out homes that were damaged by the storm, right? Um, you can talk about your lessons there and whether people tended to leave or go or, yeah, long-term consequences.

[00:26:00.610] 

Yeah. Um, a lot of the lessons there, there's a lot that we learned in New York City after Hurricane Sandy. Like any, you know, community that's been through a big disaster, there's always a learning moment. And for us, the climate resilience space, that, that was the, the learning moment. Um, most of our learnings and most of our groundings really come back to the need to take a human-centered approach to disaster recovery and climate resilience. And that means focusing not just on the infrastructure that needs to be updated and the work that needs to be done in the home or giving somebody a paycheck, but those wraparound services that I was talking about before, helping people navigate really complex systems, environments so that they actually feel like they have a decision and a choice about what they want to do. They don't feel trapped. They don't feel like they're being forced to do something that they're not ready for. And that is, you know, a huge component of what we learned through the Sandy recovery process, the buyout work that the state and the city were doing in New York City after the storm, and a recognition as we were helping Sandy-impacted households, that there were other people in the city who were also experiencing flooding, also interested in potentially relocating and feeling stuck, that we couldn't just have there be a post-disaster program.

[00:27:31.170] 

We needed something that could actually live under blue skies. And so we did the post-disaster work. And then a lot of the work in the years after Sandy once those programs were wrapped up was actually thinking about how do we create a blue sky program that can serve people through a human-centered lens to meet them through this journey? Because disasters are traumatic. People and households and communities are— these are dinner table conversations. They all have different choices that they're making. Two different neighbors, you know, on paper might look very, very similar, but they're gonna make you know, those decisions on different timelines because they have lots of different things and factors influencing them. Um, and so having that permanent program was something that we worked towards. Ultimately, uh, both the state and the city now have programs that they're developing and are starting to have come online to provide this longer-term lens of helping people migrate and, uh, be more housing, you know, housing mobile in the face of climate change than they maybe would have been otherwise. The last piece that I'll say is we learned that people don't really move that far. So we did our best to track where people move.

[00:28:54.010] 

That's easier said than done. A lot of people never want to hear from the program again. But the state in particular did research looking from their larger population of, of people that they served and found that people are moving like a few miles from where they were before. Um, they wanna stay connected to their communities. They want their kids to stay in the same schools. Um, they might be relocating out of a floodplain. And we, we in the city, uh, during our post-disaster program, tried to provide, you know, sort of incentives to help people move to less risky areas and particularly to help low-income households. We'll do that. But they're not necessarily moving like to another state or even another county. They're staying connected to their neighborhoods. And I think that that goes to the aspects of listening to communities, their needs, working with them, and the importance of social cohesion as we think about climate change and climate resilience moving forward.

[00:29:48.470] 

That is a great way to end it up. So we'll wrap things up there. Talley, thank you so much for coming on today. I really appreciate it. It's been a pleasure.

[00:29:55.760] 

Thank you.

[00:29:57.220] 

Talley Burley is the senior manager for climate risk and insurance at the Environmental Defense Fund. Thank you for tuning in to Changing Climate, Changing Migration. Make sure that you have subscribed on Apple, Spotify, YouTube, or wherever you get your podcasts. Please also leave us a review, which makes it easier for other people to find us. If you want to look through our archives, you can find every single episode of of this and other MPI podcasts online at migrationpolicy.org/podcasts. While you're there, subscribe to our free Migration Information Source newsletter. It comes out twice a month and offers accessible analysis and useful data on migration worldwide. This episode of the podcast was produced by Daniella Espacio. Editorial oversight came from Michelle Mittelstadt, and additional assistance from Lisa Dixon. Our theme music is "Touch" by Patrick Patrikios. My name is Julian Hattem. Thank you for listening. See you again soon.