As the cost of natural disasters rises, homebuyers will soon have a new tool for assessing climate risk

Homebuyers increasingly concerned about the impact natural disasters could have on their properties and budgets will soon have a new tool to help them assess risk.

Home search site Zillow announced last week that it will soon include data on potential climate risks in each of its for-sale listings in the United States. Potential buyers will be able to see a risk score, similar to the foot and transit scores currently available. for five types of weather-related phenomena: flooding, wildfires, wind, heat and air quality. The new feature provides historical information about whether (or when) the property was affected by a climate event, as well as insurance recommendations tailored specifically to the home.

Research from Zillow shows that more than 80% of potential buyers consider at least one weather-related hazard when purchasing a home. By adding a risk score to every listing, Zillow says it aims to help potential buyers better understand potential hazards – information they can then use to determine a property's long-term affordability by evaluating and planning for future insurance, maintenance, etc Repair costs.

“Climate risks are now a critical factor in home-buying decisions,” Skylar Olsen, Zillow’s chief economist, wrote in the press release announcing the new results. “Healthy markets are markets in which buyers and sellers have access to all relevant data for their decisions.”

The risk score uses data from First Street, a company that specializes in financial modeling of climate risks. The feature will be available on the Zillow website and app for iPhone users by the end of this year and will be available on Android phones next year.

Climate change is driving insurance costs to new heights

Insurance costs for homeowners have skyrocketed in recent years as weather-related disasters become more common.

According to the federal government, there were 28 major disasters last year, each causing more than $1 billion in damage. In total, these extreme weather events, which included wildfires on Maui and damage from Hurricane Idalia in states along the Southeast coast, cost nearly $93 billion. And 2023 will no longer be an outlier in the future: Moody's Analytics predicts that property damage from Hurricane Helene could reach as much as $26 billion last week, and AccuWeather estimates that total damage and economic loss will reach $160 billion could.

The high cost of covering these losses has led several major insurance providers, including Allstate, Farmers and State Farm, to drop coverage in high-risk states such as California and Florida. In other cases, insurance companies have increased premiums to offset the losses, in some cases by as much as 20% or more. Experts say renewal premiums could rise 10% to 15% this year, with homeowners in some high-risk states like Florida seeing significantly higher spikes.

Many homeowners are looking for ways to get control of rising insurance costs. Some have chosen to increase their deductibles to $5,000 or more, which can reduce premiums by several hundred dollars per year.

In a riskier move, other owners have decided to forego insurance altogether. However, the savings achieved through this strategy could backfire as homeowners would be responsible for any personal injury and property damage resulting from natural disasters. Not having insurance could also result in your mortgage lender adding a more expensive policy of their choice to your loan.

How homeowners and buyers can prepare for increasing climate risks

There is no stopping Mother Nature when she strikes. However, homeowners and potential buyers can take steps to minimize the impact of weather-related events on their homes.

The first step is to be aware of and understand the potential risks. For buyers who are unfamiliar with the most likely threats in the area, a risk assessment for an offer can be helpful. The next step is to make sure the home is as prepared as possible.

Home improvements such as replacing an old roof, installing storm-proof windows or shutters, and replacing key home systems such as old or frayed plumbing can prevent or reduce damage that can lead to costly repairs. As a bonus, these upgrades can help lower your insurance premiums.

Another important step is to create an emergency plan. This includes keeping a reserve of cash on hand in case the power goes out for several days or you need to evacuate to a safer area. Exactly how much money you need depends on the severity of the event and your family's needs. Start with $500 and adjust your reserve as needed.

Whether you are purchasing the home or already own it, it is always a good idea to set aside an emergency fund to pay for home repairs that are not fully covered by insurance.

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