Philippa Meister
May 31, 2024, 6:06 AM
In states most at risk of extreme weather, the current cost of $3,077 could nearly double by 2030.
The United States is reported to lead the world in the number of disasters caused by extreme weather, and the damage to commercial property is also hitting insurance companies hard, leading to staggering premium increases in vulnerable states.
“In states with the highest risk of extreme weather, costs could nearly double from the current $3,077 to $6,062 per property per month, a compound annual growth rate of 10.2 percent. [Compound Annual Growth Rate] According to an analysis by the Deloitte Center for Financial Services, insurance premiums could rise by “$1,935 per building per month” by 2030. Low-risk states are no exception: premiums in these states could rise from $1,935 per building per month today to $3,299 in 2030, at a compound annual growth rate of 7.9%. Average premiums for commercial buildings outside these states are projected to rise from $2,726 in 2023 to $4,890 in 2030, at a compound annual growth rate of 8.7%.
The average insurance premium for a commercial building in a high-risk state was about $1,000 in 2000. But natural disasters over the past five years have caused premiums for buildings in the 10 riskiest states to rise 108% and 31%, respectively, from the previous year.
“By 2030, the cost premium for living in a high-risk extreme weather state could be 24.0 percent higher than the national average, while in a low-risk state it could be a 32.5 percent discount,” Deloitte said.
It's perhaps not surprising that California's exposure to drought, earthquakes, heat waves, landslides, river flooding, and wildfires makes it the highest-risk state in the country with an annual expected loss score of 100%. Florida comes in second with a 98.21% expected loss score due to coastal flooding, cold waves, hurricanes, lightning, and tornadoes. Texas comes in third with 96.43%, followed by North Carolina (91.07%), Washington (89.29%), South Carolina (87.5%), Illinois (85.71%), New Jersey (83.93%), Georgia (82.14%), and Missouri (80.36%).
Deloitte noted that in addition to the current costs of natural disasters that insurers are expected to cover, insurers are also working to recoup losses that have increased in recent years. From the first quarter of 2021 to the fourth quarter of 2022, premium growth was below the rate of inflation. However, entering 2023, the situation has reversed, with premium increases exceeding inflation in three of the four quarters. “As inflation and rate uncertainty abate somewhat, the longer-term impacts of extreme weather events are likely to remain a driver of continued price increases for the foreseeable future,” the report predicted.
“In 2023, there will be 28 billion-dollar extreme weather events with estimated recovery costs reaching $92.9 billion, surpassing the 2020 record in both number and cost.8 This includes 19 severe storms (tornadoes, high winds, hailstorms), four floods, two tropical cyclones, one wildfire, one winter storm and cold snap, and one drought and heat wave. Combined, these events would represent a 56% increase from 2022 and a 180% increase from levels ten years ago, for a compound annual growth rate of 10.8%. Assuming a similar annual trajectory, there could be as many as 42 billion-dollar extreme weather events per year by 2030.”