While not everyone agrees on its cause, no one can dispute that global temperatures are rising and that some parts of the world are becoming drier while others are becoming wetter. One result — as unusual as it might initially sound — is that growing extremes in rainfall increasingly threaten your clients’ retirement nest eggs.
Because higher temperatures and too little or too much rain vastly increase the potential for fire and water damage to homes, many more advisory clients than in the past face significant financial losses from such events, especially if their homes and possessions are poorly covered by their current property and casualty insurance. If losses occur, your clients would have no choice but to deplete their retirement accounts and use other investments and savings, including funds earmarked for the education of their children and grandchildren, to repair or replace their homes and their contents.
Dr. Kelly Hereid, a senior research scientist at Chubb who works on the effects of climate change, notes that the intensity of last fall’s wildfires in California illustrates the damage that can result when an area already prone to such problems endures weather that is hotter and drier than in the past. She says that while research on the relationship between higher temperatures, less rainfall and more fires is now in its early stages, it’s likely that parts of the United States could be more prone to wildfires than in the past. And because more people are living in or near these areas than previously, they are more likely to be affected by sudden, and sometimes all-consuming, wildfires.
On the other end, more data is available about too much rain and its effects. Dr. Hereid says that extreme rainfalls — either coming from heavy storms or hurricanes — are intensifying and becoming more numerous, and thereby causing growing water perils for homeowners. The effects of such extreme rainfall affect hundreds of millions of Americans living near our coasts, as well as inland near rivers that have become more prone to flooding and in or near low-lying, poor drainage areas where the ground can become saturated quickly.
In addition, coastal flooding due to sea level rise also poses a significant flood risk, even for newer homes. A study using home data from Zillow and sea level information from Climate Central, a non-profit independent organization of scientists and journalists, found about 10,000 U.S. homes built after 2009 will be at risk of annual flooding by 2050.
Damage from flooding can be ruinous. The Federal Emergency Management Agency collects data that show just six inches of water causing damages of more than $52,000 in an average-size home; a foot of water easily can cost more than $72,000 to fix.
Having flood insurance can help your clients protect themselves, but only about 12% of American homeowners have it, says the Insurance Information Institute. Flood insurance is available from the federally-backed National Flood Insurance Program (NFIP) and from some private insurers. NFIP policies typically insure a residential building’s structural elements up to $250,000.
To help clients protect their homes — which often is their largest single asset — and investment assets, financial advisers need not become insurance experts, let alone experts in flood insurance. They can help best by establishing a relationship with an expert property and casualty insurance agent who can review clients’ current coverage and make sure they are protected. Many times, knowledgeable agents can improve protection and lower costs by eliminating duplication and consolidating coverage.
Helping to protect clients from water and fire damage resulting from climate change was not on the agenda when most of today’s advisors began their careers. But times and the environment are changing, and clients of all ages will appreciate an advisor who alerts them to risks they may not realize they face.
If you have any questions about this topic, please email me at [email protected]
Fran O’Brien is Division president, North America Personal Risk Services, Chubb.