The catastrophic wildfires in Los Angeles represent a terrible human tragedy, and for many homeowners, it will become an awful financial tragedy too, as thousands will discover that there’s a big gap between what their homes are worth and what they’ll get from insurance companies to rebuild on top of the ash.

It’s also worth noting that they’re not alone. A recent article in Bloomberg News says that an estimated 17 million U.S. homes – roughly 19% of total housing – are significantly underinsured against damage from floods and wildfires alone. The total gap between their market value and their insurance coverage, in aggregate, comes to $1.7 trillion.

That number is rapidly growing, as the housing boom pushes home values higher.
Moreover, those who have so far managed to avoid the floods and hurricanes in Florida, the wildfires across the Pacific Northwest, or the thunderstorms in Oklahoma are facing huge increases in insurance costs that erode the value of their properties. From 2011 to 2021, the average U.S. home insurance premium rose 44%, and by some estimates, it has exploded since. That’s if coverage is available. Many insurers are pulling out of the hardest-hit areas, citing climate change-related increases in nature-related damage.

Adding fuel to the fire, so to speak, is the growing number of U.S. homes that have been built on what the U.S. Forest Service calls the wildland-urban interface (WUI), where wildfires are most likely. In 1990, the census showed roughly 30 million homes at risk; now the number is 44 million. The housing boom in Florida has put millions of additional homes at risk.

The article says there is no easy solution to the problem as climate-related disasters grow in number and intensity. It estimates that the gap between home values and coverage will soon reach $2.7 trillion, and more homeowners will have to pay the difference or lose everything.

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you.