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Home Is Where The Risk Is · Simmer Down

• 0:02
  Kathleen Biggins: Welcome to Simmer Down, a nonpartisan science-based podcast that lowers the heat and explores how climate change is affecting our lives today and what's in store for tomorrow.
• 0:15
  Kathleen Biggins: I'm your host, Kathleen Biggins, founder and president of C- Change Conversations.
• 0:20
  Kathleen Biggins: Today at the kitchen table, insurance expert Ben Keys.
• 0:24
  Kathleen Biggins: Ben is a professor of real estate and finance at the University of Pennsylvania's Wharton School.
• 0:30
  Kathleen Biggins: He worked as an economist at the Board of Governors of the Federal Reserve System.
• 0:34
  Kathleen Biggins: And I wanted to learn from him how climate change is impacting our insurance system and why that system seems to be breaking with premiums way too high and coverage way too low.
• 0:46
  Kathleen Biggins: Thank you, Ben, for being with us today.
• 0:49
  Ben Keys: Thanks for having me.
• 0:51
  Kathleen Biggins: I read a really disturbing article in the Wall Street Journal recently.
• 0:55
  Kathleen Biggins: It was about a couple who had bought a house in California back in 2012, and they paid $500 for their insurance then.
• 1:03
  Kathleen Biggins: Today they're being charged $44,000.
• 1:06
  Kathleen Biggins: And when they shopped around, they found that only one other carrier, Lloyds of London, would give them coverage, and that was for $80,000.
• 1:14
  Kathleen Biggins: So something that had been their most important asset that was security to them is now becoming an albatross.
• 1:21
  Kathleen Biggins: Can you help us understand how insurance has gotten to this point where it is harming our future instead of necessarily protecting it?
• 1:32
  Ben Keys: Well, it's such a heartbreaking uh example of what's happening in insurance markets at the moment.
• 1:38
  Ben Keys: But what we're seeing at the national level for homeowners insurance is a very sharp increase in the cost of insurance.
• 1:45
  Ben Keys: And so if we want to put some numbers on it, nationwide we've seen the average homeowner's insurance policy increase by about 28% since prior to COVID in real terms.
• 1:56
  Ben Keys: So that's much faster than inflation for the average homeowner.
• 2:00
  Ben Keys: And in the riskiest areas, it's gone up much more rapidly than that, with an average increase over $1,000 in the 20% of riskiest zip codes.
• 2:10
  Ben Keys: So that example is an extreme case, but I think it's indicative of the kind of risks that we're seeing.
• 2:17
  Ben Keys: And to the point that you're kind of starting off with as a jumping off point here, we're taking something like homeownership, which is seen as a predictable kind of decision that households make.
• 2:28
  Ben Keys: And the cost of insurance is upending that predictability.
• 2:32
  Kathleen Biggins: I think we think we know how insurance works.
• 2:35
  Kathleen Biggins: I think we go, oh, we pay the premium, they aggregate it and they pay it out when necessary.
• 2:39
  Kathleen Biggins: But I believe it's much more complicated than that.
• 2:42
  Kathleen Biggins: Can you give us a peek at the sausage making and help us understand why those rates are going up so high and what role climate change could be playing in that?
• 2:52
  Ben Keys: In a sense, insurance really is as simple as that.
• 2:54
  Ben Keys: It's a means of risk transfer by pooling our risks together.
• 2:58
  Ben Keys: And so if we're all going to put uh into this pot of money and then it's only going to pay out in these kind of instances, uh, that's how we're uh expecting insurance to work through diversified risk.
• 3:09
  Ben Keys: And that that's really the key when thinking about insurance is think about it like uh like car insurance.
• 3:15
  Ben Keys: You know, accidents just sort of happen and they're not all concentrated in in one place.
• 3:20
  Ben Keys: But the way to think about what climate change is doing is it's it's basically creating a pileup.
• 3:25
  Ben Keys: It's creating a concentrated set of correlated risks.
• 3:29
  Ben Keys: And so now it's just not a one-off thing of what if I get into an accident, what if uh, you know, I have an issue with my roof or there's a problem with a tree falling on my house.
• 3:39
  Ben Keys: It it becomes a much more correlated problem.
• 3:42
  Ben Keys: And in the industry, this is known as an aggregation risk or an agglomeration risk, where you have all of these concentrated risks that are now in the path of a hurricane or in the path of a wildfire.
• 3:54
  Ben Keys: And when you have those concentrated risks, the insurance industry has to manage those risks differently.
• 3:59
  Ben Keys: They're gonna manage concentrated risks by protecting themselves through reinsurance markets, through other financial instruments.
• 4:07
  Ben Keys: And that's really where the rubber meets the road in terms of climate change affecting the cost of insurance.
• 4:13
  Kathleen Biggins: So it seems to me that the system only works if the premiums are acceptable, if that we can afford to have them, and also only works if they bring in enough revenue for that insurance company to be solvent and make money.
• 4:30
  Kathleen Biggins: So there's kind of two different pressures.
• 4:32
  Kathleen Biggins: Seems like we're at a point where those two don't jibe anymore, or we're approaching a point where those two don't jibe.
• 4:38
  Kathleen Biggins: Would you agree with that?
• 4:40
  Ben Keys: Yeah, that's really the fundamental tension.
• 4:41
  Ben Keys: I think you've hit on the key point here.
• 4:43
  Ben Keys: So as we're thinking about what climate change is doing in this space, we're thinking about the frequency and severity of different types of risks.
• 4:51
  Ben Keys: That's things like hurricanes, wildfires.
• 4:54
  Ben Keys: Increasingly, it's hail storms, severe convective storms, which is the big driver of rising insurance costs across the Midwest.
• 5:02
  Ben Keys: And as those events are occurring more frequently, to your point, insurers are saying, look, you know, we need to stay solvent.
• 5:09
  Ben Keys: And that means we are trying to be profitable, run a profitable business.
• 5:13
  Ben Keys: And that means that we need to charge you a higher premium to reflect greater risks.
• 5:18
  Ben Keys: And it's not just talk that they're saying, well, we want to raise your premiums because we want to make more profits.
• 5:24
  Ben Keys: They are, in fact, paying out more in claims.
• 5:27
  Ben Keys: And the claims rate has gone up dramatically over the last 25 years in real terms.
• 5:33
  Ben Keys: And so premiums ultimately need to reflect those higher costs.
• 5:37
  Ben Keys: And that is creating the tension on the affordability side.
• 5:40
  Ben Keys: Like you said, we have to be able to afford the policies in order to purchase our homes and live in them.
• 5:47
  Kathleen Biggins: I read recently that climate change was responsible for about 30% of the losses over the last decade.
• 5:55
  Kathleen Biggins: And that's kind of that's a third worse.
• 5:58
  Kathleen Biggins: Does that number sound credible to you?
• 6:00
  Kathleen Biggins: And is that going to get worse in the future as climate change gets worse in the future?
• 6:05
  Ben Keys: I think of it as a lot of what's happening in the insurance space is uh is a symptom of a worsening climate on a bunch of different dimensions.
• 6:14
  Ben Keys: And I and I think the key there is thinking about the risks that we're now more increasingly exposed to uh with a warmer climate.
• 6:22
  Ben Keys: And that means that we're seeing elevated sea levels, which increases the chances of coastal flooding and storm surges.
• 6:30
  Ben Keys: Uh, we're seeing this in terms of hurricanes, we're seeing this in terms of wildfires and hail, severe convective storms, winter storms.
• 6:39
  Ben Keys: So all of these things are potential contributors.
• 6:42
  Ben Keys: And you know, I think it's interesting that there's a number of different methods out there for trying to estimate just how much is really attributable to climate change.
• 6:51
  Ben Keys: I think it's a tough calculation to get exactly right because it's all kind of built on the base of a changing climate.
• 7:00
  Kathleen Biggins: Right.
• 7:00
  Kathleen Biggins: And we know that we are moving to and building in places that are prone to more of these disasters, like putting a big bullseye on our backs.
• 7:08
  Kathleen Biggins: So a big part of the problem is what our own actions are precipitating.
• 7:12
  Ben Keys: That's exactly right.
• 7:13
  Ben Keys: And if we think about what some of the drivers are, uh, you know, a big one is inflation, that we're seeing rising costs of homeownership.
• 7:20
  Ben Keys: We're seeing rising cost of materials, right?
• 7:23
  Ben Keys: Rising cost of labor.
• 7:24
  Ben Keys: So the repairs cost more each time there's damage.
• 7:28
  Ben Keys: And that's something that the insurers have pointed to.
• 7:30
  Ben Keys: We're seeing a changing interest rate environment where interest rates are no longer bouncing around near zero where they were before COVID.
• 7:38
  Ben Keys: And it meant that money was cheap for insurers and reinsurers.
• 7:42
  Ben Keys: Um, they now have to deliver a different return profile to their investors when you can get a higher return through the treasury market.
• 7:50
  Ben Keys: And then this long-term trend of moving into harm's way, um, that we as a country have moved uh south and west uh out of the rust belt, out of the northeast and into these warmer climates.
• 8:02
  Ben Keys: And you can trace that all the way back to the rise of air conditioning.
• 8:05
  Ben Keys: I mean, that's really the catalyst for making a lot of these places more livable.
• 8:10
  Ben Keys: All of those factors point in the same direction, which is we are uh exposing ourselves to more risk, and the cost of that risk is increasing.
• 8:18
  Kathleen Biggins: Who would have thought that air condition could have precipitated this sort of migration, but it makes a lot of sense.
• 8:24
  Kathleen Biggins: Um so clearly we are part of the role, but isn't it true that these big natural disasters, these big storms, are happening more frequently and are more powerful than they were in the past?
• 8:36
  Kathleen Biggins: I mean, last year we had what, $23 billion storms in this country?
• 8:40
  Kathleen Biggins: Insurers have to be looking at that and seeing the trend and forecasting a different type of risk in the next five, 10, 15 years.
• 8:50
  Kathleen Biggins: How are they preparing for what's coming, or are they?
• 8:55
  Ben Keys: Yeah, I mean, the insurers and the reinsurers who tend to operate on a more global scale.
• 9:00
  Ben Keys: So think about like Swiss Re or Munich Re.
• 9:04
  Ben Keys: They have poured tens or hundreds of millions of dollars into data and modeling to really understand where the climate is headed and how that's shaping these risks going forward.
• 9:15
  Ben Keys: Uh, they're putting their money where their mouth is and they are in these very exposed first-loss positions, right?
• 9:21
  Ben Keys: When something bad happens, it's the insurers who are on the hook.
• 9:24
  Ben Keys: So they are trying their absolute hardest to get this right.
• 9:28
  Ben Keys: And they are very clear-eyed about these risks having increased sharply over the last 25 years and increasing more sharply in the next 25 years.
• 9:38
  Ben Keys: And if you look at the kind of language that comes out of these firms, they're saying that we should anticipate a changing world as we go forward that is more prone to risk, uh, where there are more frequent disasters, where there are more severe disasters.
• 9:53
  Ben Keys: And all of that suggests that we need to prepare ourselves in a number of ways.
• 9:59
  Ben Keys: Um, and the insurance industry is playing a part in that preparation, but they're certainly not the not the whole ballgame.
• 10:07
  Kathleen Biggins: If things are getting worse as they project, could we get to a point where the insurance system no longer functions?
• 10:16
  Kathleen Biggins: Could indeed the world get to a point where these risks are too great for the price to be spread equally?
• 10:23
  Kathleen Biggins: And I ask this because uh the head of the Fed, Jerome Powell, recently said that within the next 15 years, there'll be parts of our country that will be unable to get a mortgage and where long-term investment um will come to a screeching halt.
• 10:38
  Kathleen Biggins: And that sounded kind of apocalyptic at the time, but I don't think of him as being an apocalyptic kind of guy.
• 10:46
  Kathleen Biggins: So is this a realistic concern or is this sensationalized?
• 10:52
  Ben Keys: Yeah, it was certainly an ominous quote from the Fed chair who is usually so even keel about these kinds of things.
• 11:00
  Ben Keys: I I want to kind of take that apart into a couple of different elements.
• 11:04
  Ben Keys: So, one is this aspect of when we're thinking about long-term investment, in that sense, climate change is a clear deterrent.
• 11:11
  Ben Keys: If we're thinking about the areas where this risk is going to grow over time, um, there are going to be areas of the country where you're going to have to pause and say, do I want to start a business in this area of the country looking 10, 15, 20 years down the line, uh, are we going to see the demand for this business?
• 11:31
  Ben Keys: And some of those things are insurable risks and others are uninsurable risks.
• 11:36
  Ben Keys: And it's useful to think about the difference between those two.
• 11:39
  Ben Keys: So if we think about heat, for instance, extreme warming uh is not something that you can go to your insurance company and say, I want to take on an insurance policy that says it's going to be too hot for anyone to come uh, you know, come to my restaurant next year.
• 11:54
  Ben Keys: And so when we're thinking about the insurability of some of these risks, it it varies quite a bit.
• 11:59
  Ben Keys: On the the mortgage front, whether we can get a mortgage or not, there I was sort of surprised that the Chair Powell said what he said, because so much of the mortgage market in the US is run through the government.
• 12:12
  Ben Keys: So that's Fannie Mae, that's Freddie Mac, that's the FHA.
• 12:15
  Ben Keys: None of those entities price climate risk at the moment.
• 12:19
  Ben Keys: They don't price regional risks.
• 12:20
  Ben Keys: And so as long as they say, hey, we're open for business, we'll we'll write mortgages.
• 12:25
  Ben Keys: I don't, I don't see the mortgage market being sort of the point the friction point in all of this.
• 12:30
  Ben Keys: You you kind of had a third question though, which was about, you know, will we see sort of markets becoming uninsurable and the uh availability of insurance dry up?
• 12:40
  Ben Keys: And on that point, I would argue that we're already there.
• 12:43
  Ben Keys: What we've seen uh in its place is instead of a private insurance market, we've seen the rise of these state-run residual markets.
• 12:52
  Ben Keys: These are known as fair plans, and we've seen them grow sharply in places like Florida and California, where private insurers have picked up stakes and left.
• 13:01
  Ben Keys: They are not there writing policies in many of these communities anymore.
• 13:05
  Ben Keys: And we now have a lender or an insurer of last resort who in Florida is the largest insurer in the entire state.
• 13:13
  Ben Keys: And so when we're thinking about how private markets operate and we think about sort of, you know, the capitalist design of our insurance markets, those markets have already broken.
• 13:22
  Ben Keys: And we've had to step in in a big way to provide government supports at the state level to keep those markets operating, because if you can't get an insurance policy, you can't get a mortgage.
• 13:34
  Ben Keys: And if you can't get a mortgage, you can't buy a home.
• 13:37
  Kathleen Biggins: Help me understand what it means when uh states step forward in this way.
• 13:42
  Kathleen Biggins: Does it mean that taxpayers are on the hook?
• 13:45
  Kathleen Biggins: Or does it mean that it is spread around the remaining insurers?
• 13:49
  Kathleen Biggins: What's the mechanism that that enables states to become the insurers?
• 13:55
  Ben Keys: These state insurers of last resort have uh a long history at this point now.
• 14:00
  Ben Keys: Many of them were developed in the 1960s uh to provide insurance in in inner city communities that where private insurers were exiting during an era of white flight.
• 14:12
  Ben Keys: You know, cities were struggling at their lowest point in many of the biggest cities in the country.
• 14:17
  Ben Keys: Uh, those were always designed to be a band-aid.
• 14:19
  Ben Keys: They were designed to say, okay, we're gonna make sure that you have continuous coverage.
• 14:24
  Ben Keys: What they've now shifted to in the face of insurer exit is that they've become a much more permanent fixture on the insurance landscape.
• 14:32
  Ben Keys: Um and the way that these usually work is um that the state is the bearer of this risk and that a portion of that risk falls back on the insurers that are operating in that state, but uh a much larger ultimate burden uh potentially falls on the residents of that state.
• 14:50
  Ben Keys: And they can recoup funds either through the tax base or through um surcharges on other insurance policies in the state.
• 14:57
  Ben Keys: But ultimately, this is being borne by taxpayers across the state.
• 15:01
  Ben Keys: And then what that means is that those taxpayers in the state who live in a safer area are indirectly on the hook for risks in in riskier parts of the state.
• 15:11
  Kathleen Biggins: So again, it comes back to how we kind of started our questioning, which is insurance used to feel like something that was secure, but now it's something that in fact can expose us financially instead of just protecting us.
• 15:25
  Kathleen Biggins: Because if all of a sudden a category five hits Florida, it means that all the policyholders or the taxpayers will be on the hook for that.
• 15:33
  Kathleen Biggins: And and you can't really prepare for that.
• 15:36
  Kathleen Biggins: I'd like to go back to something that you said earlier about how if you can't get insurance, you can't get a mortgage.
• 15:44
  Kathleen Biggins: Because it seems that many people believe that insurance uh loss in this area is really a precursor for much greater economy-wide damage.
• 15:58
  Kathleen Biggins: It's been called the Canary in the coal mine, a first glimpse of how climate change is impacting values across different segments of our economy.
• 16:08
  Kathleen Biggins: Could you help unpack what that means and let us know whether you think it's a credible threat?
• 16:14
  Ben Keys: I certainly do.
• 16:15
  Ben Keys: And I and that was actually the title of an op-ed that I wrote was this being a canary in the climate coal mine.
• 16:22
  Ben Keys: I I think it hits in two main ways.
• 16:25
  Ben Keys: The first way is it's hitting American households pocketbooks in ways that climate change hasn't previously.
• 16:33
  Ben Keys: There were times where you could sort of hear about a storm happening somewhere far away or some distant disaster that didn't quite hit home.
• 16:42
  Ben Keys: And I think these changes in insurance markets are leading to challenging conversations around the kitchen table.
• 16:48
  Ben Keys: Like, can we really afford to keep this insurance policy in place?
• 16:53
  Ben Keys: What if we have to look for another policy, another carrier?
• 16:56
  Ben Keys: Uh, what if we can't afford this house anymore because the insurance costs have gotten so high?
• 17:01
  Ben Keys: Like the example that you started our conversation with.
• 17:04
  Ben Keys: So I think I think that is creating real tension for households budgets.
• 17:09
  Ben Keys: And I think that's where it's first and foremost having an effect.
• 17:12
  Ben Keys: I think the second uh order effect is on valuation.
• 17:17
  Ben Keys: Like you said, it's on home values and thinking about the value of a location.
• 17:21
  Ben Keys: Historically, we've thought of coastal living as something that people pay a premium for for ocean views up in the mountains.
• 17:29
  Ben Keys: Well, those are areas that are exposed to sea level rise, those are areas that might be exposed to wildfires, and I think we're seeing that premium start to erode as future buyers are incorporating this risk into their decision making.
• 17:46
  Kathleen Biggins: More when we return.
• 17:48
  Kathleen Biggins: What I'm reading is that in some cases, homeowners can't sell.
• 19:20
  Kathleen Biggins: I mean, they literally cannot sell if the house is not easily insured or the insurance is too high.
• 19:26
  Kathleen Biggins: Um, so I definitely want to come back to that.
• 19:28
  Kathleen Biggins: But I'd like to delve down on the economy-wide threat a little bit more.
• 19:32
  Kathleen Biggins: Please correct me if I'm wrong, but this does give me nightmares at night.
• 19:36
  Kathleen Biggins: So tell me I am wrong.
• 19:38
  Kathleen Biggins: But if indeed you can't insure properties, then you can't get the mortgage.
• 19:45
  Kathleen Biggins: That means those property values begin to decline.
• 19:48
  Kathleen Biggins: That means that municipal tax bases are perhaps compressed.
• 19:53
  Kathleen Biggins: And that means that municipal bond prices are no longer at the same level.
• 20:00
  Kathleen Biggins: At the same time, on the other side, and if you uh can't get insurance and the mortgage that has been put into a mortgage-backed security is no longer valued at what it was, then that is still inflated.
• 20:14
  Kathleen Biggins: And so we have these two tranches that are major investment areas in our economy, which are also no longer at the value that they have been in the past.
• 20:24
  Kathleen Biggins: And I think I've heard that as part of this story of the economy writ large unraveling a bit and something similar to the 2008.
• 20:33
  Kathleen Biggins: Again, is that apocalyptic or is that realistic?
• 20:37
  Ben Keys: Yeah, I put that closer to the apocalyptic side of the spectrum.
• 20:42
  Ben Keys: I think that is the logical chain reaction that people have in mind, which is that we would see this deterioration in mortgage credit, because if you can't sell the house for as much as the outstanding mortgage, then the mortgage lender and the mortgage-backed securities holders would take a loss, and you would see that potential kind of unwinding in municipal bond markets.
• 21:04
  Ben Keys: And you kind of laid out what's been called the climate doom loop for some of these communities.
• 21:11
  Kathleen Biggins: There are a lot of those, I must say.
• 21:12
  Kathleen Biggins: Okay.
• 21:13
  Ben Keys: And and I think that you know getting to that point is, in my mind, something that's only going to affect some of the very most risky areas where I think there is uh increasing acceptance that insurance is not going to be widely available and that many of the residents are going to either be wealthy enough to self-insure or are going to accept the potential risks or the trade-offs.
• 21:40
  Ben Keys: And it seems like every couple of months a reporter goes down to Key West at the very end of the Florida Keys and interviews residents there, and they say, What are you guys doing here?
• 21:52
  Ben Keys: This is an incredibly risky place to live, and yet uh property values uh nonetheless seem to be surprisingly high.
• 21:59
  Ben Keys: Uh, can any of you get in your hands on an insurance policy?
• 22:03
  Ben Keys: And the people there say we love it here.
• 22:05
  Ben Keys: Uh, we are going to be here regardless of whether we can get an insurance policy or not.
• 22:09
  Ben Keys: And so as long as there are enough other people who love it there, uh, then you can find a buyer for that house who's going to pay cash, going to continue to enjoy the Key West lifestyle.
• 22:20
  Ben Keys: And so I think on those extreme cases where we we would see this kind of issue unwinding, it's going to be the places where there isn't that desirability to live in that location.
• 22:31
  Ben Keys: I think about some of the lower income communities along the Louisiana coastline, for instance, as some of those that are most exposed, where the ability to count on that municipal funding because property values are deteriorating is eroding.
• 22:45
  Ben Keys: And that's where I think it's really problematic.
• 22:48
  Ben Keys: But I think it's much more on a local level.
• 22:51
  Ben Keys: And so when it scales up to the level of the national economy, we think of a $13 trillion mortgage market.
• 22:59
  Ben Keys: The mortgage market can handle that the sort of more isolated.
• 23:02
  Ben Keys: Instances of that.
• 23:04
  Ben Keys: I think it would take a pretty big shift to really undermine the overall economy.
• 23:11
  Ben Keys: I think one of the other key differences with 2008 is a lot of the mortgages that were written at that time were essentially exploding mortgages.
• 23:20
  Ben Keys: They were mortgages that were written with a teaser rate that was going to jump at some point in time.
• 23:26
  Ben Keys: And that created sort of this trigger date for the explosion.
• 23:30
  Ben Keys: And so what that meant is that the market had to unwind at a particular point in time.
• 23:35
  Ben Keys: And I think that's very unusual.
• 23:37
  Ben Keys: I think more traditionally, what we see is a very gradual erosion of value that ultimately induces migration, induces other shifts in choices that people make.
• 23:49
  Ben Keys: And that can take years or in many cases decades.
• 23:52
  Ben Keys: And I think of it in some ways as parallel to what's happened to the Rust Belt.
• 23:57
  Ben Keys: If we think about communities that were dependent on manufacturing jobs, and those manufacturing start to jobs start to leave at a trickle, uh, and then that ultimately builds to a point where you get the kind of exit that we had from some of our major Rust Belt cities.
• 24:13
  Ben Keys: I think you could see that dynamic play out over decades in some of the more exposed communities to climate change.
• 24:21
  Ben Keys: But I don't think there's an all-at-once 2008 event that shocks the overall system.
• 24:27
  Kathleen Biggins: Thank you.
• 24:27
  Kathleen Biggins: Now I will sleep better.
• 24:29
  Kathleen Biggins: That's terrific.
• 24:30
  Kathleen Biggins: I hope so.
• 24:30
  Kathleen Biggins: I hope so.
• 24:31
  Ben Keys: And that's certainly, you know, that's just my crystal ball.
• 24:34
  Ben Keys: That's not that's there's no guarantees.
• 24:36
  Ben Keys: But I see it playing out in a in a in a sluggish and disorderly way rather than an everyone adjusts all at once kind of scenario.
• 24:45
  Kathleen Biggins: So you said that the insurance companies and reinsurance companies have models looking forward, but it it seems that now consumers, people who are out looking to buy a house or to sell a house, also have models available that are deemed credible.
• 24:59
  Kathleen Biggins: Um, there are models that put out climate risks for every single home in the United States.
• 25:04
  Kathleen Biggins: That too is playing havoc with the real estate market, kind of scaring sellers who suddenly don't have the same value in their homes because they get a bad climate rating.
• 25:14
  Kathleen Biggins: Um, and it's arming buyers.
• 25:17
  Kathleen Biggins: How good are those potential models?
• 25:21
  Kathleen Biggins: Are they something that is good for the market, or is there really kind of stirring up the pot without a whole lot of benefits?
• 25:28
  Ben Keys: Yeah.
• 25:28
  Ben Keys: So so I think that adding more information to the market is a good thing.
• 25:33
  Ben Keys: And I think that the sooner we start to incorporate these risks into our decision making, the more time we have to adjust and to adapt to growing risk.
• 25:43
  Ben Keys: If things are going to be a lot worse 25 years from now, when you look at what's available on the market today, we're still massively outgunned relative to what the insurance industry has.
• 25:53
  Ben Keys: Their data and models are incredibly uh detailed in terms of the granularity and the richness.
• 26:00
  Ben Keys: But I do think that we're getting some uh deep insights from the more freely available data.
• 26:06
  Ben Keys: So there's a nonprofit called the First Street Foundation that provides a lot of these risk scores.
• 26:12
  Ben Keys: And you can find the risk scores on certain home shopping uh websites like realtor.com.
• 26:18
  Ben Keys: But on other sites, there's been a debate about whether to keep the scores or or take them off.
• 26:23
  Ben Keys: And I think the issue there is really about false precision in what does it mean if we're next door neighbors, but your house is an eight and my house is a five on this climate risk score.
• 26:34
  Ben Keys: Well, we should be a little bit skeptical of that sort of house-by-house granularity.
• 26:39
  Ben Keys: But when I look at this data, I view this as being extremely high quality data at the neighborhood level.
• 26:45
  Ben Keys: And if you look at that level, so you just zoom out one level from the house and you just say, okay, is this neighborhood prone to flooding?
• 26:53
  Ben Keys: This model gets it, I would say, close to perfect.
• 26:56
  Ben Keys: It's incredibly accurate.
• 26:58
  Ben Keys: And it's far better than just relying on are you in a FEMA flood zone or not, which we know the boundaries for those maps are problematic in lots of reasons.
• 27:08
  Ben Keys: Those are politically drawn boundaries.
• 27:10
  Ben Keys: So I think very highly of First Street's data, and I view it as a starting point for doing this research rather than the ending point.
• 27:17
  Ben Keys: I think this is the kind of thing where someone who's shopping for a house should use that information and then say, I need to gather more information.
• 27:24
  Ben Keys: I need to learn more about recent disasters in this area, what the insurance costs look like for my neighbors, and really understand the risks.
• 27:32
  Kathleen Biggins: No, it's interesting you say that because I did it for my property.
• 27:35
  Kathleen Biggins: And I was shocked because I live in a very green, kind of wooded suburb in New Jersey.
• 27:42
  Kathleen Biggins: And the projection is that my wildfire risk is going to be quite high in the future, which is not even on our radar now.
• 27:49
  Kathleen Biggins: I mean, wildfires happen far away, not in our area.
• 27:53
  Kathleen Biggins: So it was a little bit of a wake-up call for me about how I needed to widen my perspective of what climate risks may be coming at my home.
• 28:02
  Kathleen Biggins: So what can we do as individuals to start to harden our homes, to make our homes more insurable, or to protect ourselves in this kind of capricious environment where we could get a bill that knocks our budget off its foundations at any time.
• 28:20
  Ben Keys: Yeah, I think you you've set this out in in such a useful way.
• 28:24
  Ben Keys: I think the the place to start is with gathering information, really trying to understand what are the risks that might affect me and my household or my neighbors in in the coming years.
• 28:36
  Ben Keys: And so, you know, you getting this news about wildfire risk should then, you know, hopefully start a conversation with your neighbors.
• 28:43
  Ben Keys: What should we be thinking about here in terms of clearing brush around our houses?
• 28:48
  Ben Keys: Should we think about doing our landscaping differently in the, in the, you know, with the threat of wildfire risk?
• 28:54
  Ben Keys: I think so.
• 28:55
  Ben Keys: The place to start is information.
• 28:57
  Ben Keys: Once we have that information, I think it's it's very useful to then uh start to look at some of the home hardening investments that can be made.
• 29:04
  Ben Keys: And some of them are extremely affordable uh when it comes to elevating your HVAC system or installing flood flaps uh that gives water a way to drain out of the house.
• 29:15
  Ben Keys: Some of the hardening techniques around uh wildfire prevention are also very straightforward.
• 29:21
  Ben Keys: It's logical stuff.
• 29:22
  Ben Keys: It's trimming trees, it's removing bushes that are close to the house, it's not having wooden fencing up to the house.
• 29:28
  Ben Keys: There's a playbook for these things.
• 29:30
  Ben Keys: And so where I think people get misled is they they think that those efforts are going to pay for themselves quickly in the form of lower insurance premiums.
• 29:39
  Ben Keys: And um, and that's tends not to be the case.
• 29:42
  Ben Keys: The way they pay for themselves is in reducing your overall risk, sleeping better at night, and hopefully if a bad event happens, um, that your home fares better.
• 29:52
  Ben Keys: But the issue with the insurance space is that they're writing these annual contracts, and there's really no guarantee that your insurer today is going to be your insurer tomorrow.
• 30:00
  Ben Keys: And so, you know, they can't offer you a kind of a long-run contract with a long-run discount for doing all of these uh hardening efforts because that's not the way the market is set up at the moment.
• 30:11
  Ben Keys: We just don't see those kind of long-term arrangements at the moment.
• 30:14
  Ben Keys: But I think starting by collecting information and then putting together a playbook for uh for making your home uh more resilient towards the the most likely disasters is the place to start.
• 30:26
  Kathleen Biggins: I still go back to what we discussed earlier on.
• 30:29
  Kathleen Biggins: When you buy a house, you have a mortgage, you say, okay, I'm here for 30 years or until I sell.
• 30:35
  Kathleen Biggins: It's mine, it's safe, it's home.
• 30:38
  Kathleen Biggins: Insurance was just an add-on thing.
• 30:40
  Kathleen Biggins: It was something you had to get.
• 30:41
  Kathleen Biggins: So of course you wanted it and you did.
• 30:43
  Kathleen Biggins: But now all of a sudden, that insurer can leave year to year.
• 30:47
  Kathleen Biggins: That contract is in one year, and you may not be able to get insurance the next year, or it could be $44,000 like the couple we spoke about before.
• 30:55
  Kathleen Biggins: It is taking out the security of owning a home.
• 31:01
  Kathleen Biggins: And it makes me wonder how my kids are going to do it because we know that climate change risks will be even greater in the next 20, 30 years.
• 31:09
  Kathleen Biggins: So is the insurance industry looking for ways to protect their industry in the future and protect my child's ability to own a home?
• 31:21
  Ben Keys: I think you're exactly right that the volatility in insurance costs is kind of up-ending the stability of homeownership in a lot of communities.
• 31:30
  Ben Keys: That the predictability of the costs of homeownership is seen as one of the big benefits.
• 31:35
  Ben Keys: Why we take on a fixed rate mortgage instead of an adjustable rate mortgage?
• 31:39
  Ben Keys: Because we want to have predictable payments.
• 31:41
  Ben Keys: We want to know how much we're going to owe on that mortgage each month.
• 31:45
  Ben Keys: And this is taking away the predictability of the cost of homeownership.
• 31:50
  Ben Keys: I think the challenge for the insurance industry is thinking long term.
• 31:55
  Ben Keys: And like many companies, they tend to operate over a much shorter time horizon where they are looking at annual policies and deciding, okay, here's the policies that are up for renewal this month.
• 32:09
  Ben Keys: Some of those we're going to decide to renew and we're going to offer them a new, a new price.
• 32:13
  Ben Keys: And others were going to say, no, we're not operating in that area anymore.
• 32:18
  Ben Keys: We've seen a sharp increase in non-renewals in the riskiest areas in just the last few years and some data that was collected by the previous uh Senate budget committee.
• 32:29
  Ben Keys: And so the insurance industry is adjusting very quickly.
• 32:32
  Ben Keys: They're an incredibly nimble industry.
• 32:34
  Ben Keys: They don't have long-term commitments and long-term roots in a lot of these areas in a financial sense.
• 32:39
  Ben Keys: Now, they often have brokers on the ground, uh, but in a financial sense, they have the ability to move their business elsewhere very quickly.
• 32:47
  Ben Keys: And so this is you're highlighting one of the key worries in this space, which is how is the insurance industry thinking long-term about this?
• 32:54
  Ben Keys: And I think they're very aware of these changes.
• 32:57
  Ben Keys: Like we've said multiple times now.
• 32:58
  Ben Keys: They have the data, they have the models, they know what's coming.
• 33:01
  Ben Keys: But um, you know, how do you take such a short-term business and project it out into the long term?
• 33:06
  Ben Keys: I think that takes a deeper rethinking about the kinds of contracts that they write and the kinds of commitments that they make.
• 33:14
  Kathleen Biggins: I will say that the reinsurance companies started talking about climate change all the way back in the 1980s.
• 33:19
  Kathleen Biggins: So they have at least used the bully pulpit a bit, but I haven't heard a lot from the other insurance companies really in raising awareness of how this issue is infringing on this right, if we if we dare call it a right to home ownership.
• 33:35
  Kathleen Biggins: You said something else, though.
• 33:37
  Kathleen Biggins: You were really concentrating on the disaster-prone areas.
• 33:40
  Kathleen Biggins: But I have also heard friends in Colorado who lost their insurance and almost couldn't find insurance somewhere else, or even in the Midwest.
• 33:49
  Kathleen Biggins: Again, you mentioned hail, but it's not just the extremely uh climate-exposed areas.
• 33:55
  Kathleen Biggins: It's it seems like this is happening all around the country.
• 33:59
  Ben Keys: It's a good reminder that there's no such thing as uh as a safe haven from climate change.
• 34:04
  Ben Keys: And I think sometimes we have this idea in our minds that we can go somewhere, we can we can move somewhere where the risks are are zero.
• 34:12
  Ben Keys: And and that's not not realistic.
• 34:13
  Ben Keys: And you look at some of the the large flooding events in places like Asheville, North Carolina, or in Vermont, which has suffered a number of major floods in in recent years.
• 34:23
  Ben Keys: And these were uh areas that were considered climate safe havens.
• 34:27
  Ben Keys: And in the Midwest, I think the the cost of hail has has risen much more sharply than is appreciated.
• 34:35
  Ben Keys: And when you talk to insurers and the insurance regulators in a state like Colorado, uh, they all point to hail as being the key factor that's driving up the cost.
• 34:45
  Ben Keys: And so hail storms are getting more frequent, and actually the size of those balls of hail, right?
• 34:51
  Ben Keys: Yeah.
• 34:51
  Ben Keys: Um, you know, from golf falls to grapefruits or something like that.
• 34:55
  Ben Keys: So you're getting these more serious storms.
• 34:58
  Ben Keys: You also in Colorado have seen a big increase in house prices.
• 35:01
  Ben Keys: And so the replacement costs of a lot of these homes have gone up considerably.
• 35:06
  Ben Keys: And this is kind of going hand in hand with a market where house prices have shot up.
• 35:10
  Ben Keys: It's a wonderful place to live.
• 35:11
  Ben Keys: And lots of people have moved there, and that's increased housing costs.
• 35:15
  Ben Keys: And so repairing all of those roofs uh of all of those homes after a hail storm uh has gotten very expensive.
• 35:22
  Ben Keys: But it is much broader than uh, you know, just a Florida story or uh or a Northern California or a California wildfire story.
• 35:31
  Kathleen Biggins: So you have given me a lot of things that have allayed some of my fears.
• 35:36
  Kathleen Biggins: So thank you for that.
• 35:38
  Kathleen Biggins: Can you tell me what gives you hope as we look ahead on how we will prepare for these increased challenges of climate change?
• 35:48
  Ben Keys: Yeah, well, I I think first and foremost, we are a very adaptive species.
• 35:53
  Ben Keys: We are found an ability to live uh in a tremendous range of conditions, and we know that we are able to adjust when needed.
• 36:03
  Ben Keys: I think the other thing that gives me some hope is that we have a tremendous amount of wealth in this country when it comes to our housing markets.
• 36:12
  Ben Keys: It's about $55 trillion in the value of all of the real estate in the country.
• 36:17
  Ben Keys: For most households, their house is their biggest asset and their mortgage is their largest liability.
• 36:23
  Ben Keys: And that means that it takes center stage when thinking about decision making for households.
• 36:29
  Ben Keys: And so I'm hopeful that we are going to see people think more thoughtfully and carefully around these kinds of risks and seek out strategies that lead to more adaptation, more resilience, and ultimately, you know, make the economy even stronger and and sort of make the places where we choose to live even more exciting and vibrant.
• 36:53
  Kathleen Biggins: That's a great place to end.
• 36:55
  Kathleen Biggins: Ben, thank you so much for sharing your time and expertise with us.
• 36:59
  Kathleen Biggins: We've learned so much.
• 37:01
  Kathleen Biggins: So thank you.
• 37:02
  Ben Keys: Absolutely.
• 37:02
  Ben Keys: Well, thanks so much for having me.
• 37:09
  Kathleen Biggins: Thank you so much for joining us.
• 37:11
  Kathleen Biggins: And thank you to Ben Keys for bringing his insights and expertise to this conversation around the kitchen table.
• 37:19
  Kathleen Biggins: If you'd like to learn more about C- Change conversations, please look at our website, the letter C-conversations with an S dot org.
• 37:30
  Kathleen Biggins: There you can find all sorts of information about climate change, but also about our outreach.
• 37:36
  Kathleen Biggins: We talk to groups about the risk of climate change and what we can do about it.
• 37:42
  Kathleen Biggins: If you are interested, please reach out.
• 37:45
  Kathleen Biggins: We'd love to take this presentation to your town as well.
• 37:49
  Kathleen Biggins: Did you know that podcasts are not meant to be hoarded?
• 37:54
  Kathleen Biggins: If you got something out of this, please pass it along.
• 37:57
  Kathleen Biggins: Simmer Down is produced by Hans Buetow and Rebecca Fishkin.
• 38:02
  Kathleen Biggins: A special thanks to Carrie Dyckman, our creative director, and to Nicole Curnan and Margaret Koval for their ongoing contributions.
• 38:11
  Kathleen Biggins: We hope you listen to our other episodes and bring the climate conversation to your kitchen table.