An article in the NYT today describes the rising cost of insurance for homeowners on the coast. Insurance premiums are rising between 100 and 1000% for homeowners, depending on the materials used in construction and whether the home is single-family or condominium.
Such high premiums are required. Despite the appearance of gouging, insurance companies are aware that historical loss models have not protected them. Coastal insurance premiums have been dramatically underpriced, given recent experience. This may finally bring people back to the reason that coasts were not populated in the first place - no one wanted the high risk of loss. Thus, the coasts were populated with disposable structures by people who could afford to lose them. Mortgages were rare on the coast.
Of course there is a wild card. The Federal Government may just tax the rest of the country to cover the risks taken by coastal dwellers. Already, flood insurance is subsidized by those who don't use it. FEMA has flood policies that are much cheaper than what private insurance would charge. A fair approach is for the government to move these risks and their management to the private sector so that coastal dwellers bear the true costs of ownership. However, the article suggests that perhaps costs may move the other way - all coastal insurance may be transferred to the government.
Since 1968, FEMA has managed NFIP and lost over $50 billion. As indicated here, we have all subsidized those living on the coast. Finally a potential solution is in sight. FEMA is rolling out Risk Rating 2.0 on October 1, 2021 to bring rates largely into line with the private market on a true risk-based system. Of course, there is a high risk that politics overturn it entirely. However, with climate change, there is clear urgency to updating these systems and introducing rational behavior to housing development. There is already a built-in buffer - for people who have policies, adjustments are limited to a maximum of 18% per year. This will be fascinating to watch.
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