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
On the other end, more data is avail-
able 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 lowlying, 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 poli-
cies typically insure a residential build-
ing’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 relation-
ship with an expert property and casu-
alty insurance agent who can review
clients’ current coverage and make sure
they are protected. Many times, knowl-
edgeable agents can improve protection
and lower costs by eliminating duplica-
tion 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 AskFran@
Fran O’Brien is Division President, North
America Personal Risk Services, Chubb.
WEALTH & RISK
By Fran O’Brien
Changing Weather and Retirement Plans
With climate change affecting retirement homes and nest eggs, advisors
need to understand their clients’ insurance needs.