Home insurance protects against climate change. But report finds millions are missing out.

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In the housing market, homeowners insurance has become the embodiment of the effects of climate change. Over the past several years, more frequent and more expensive severe weather events have strained insurance companies, even as skyrocketing premiums punish homeowners' wallets.
Now, new research proves what many observers have assumed but rarely quantified: Insurance does shield homeowners from financial trouble in the wake of weather disasters, but existing guidelines for coverage are nowhere near adequate for the scale and scope of potential perils. Even more concerning, insurance costs may soon become too much for homeowners to afford.
More: Homeownership used to mean stable housing costs. That's a thing of the past.
The research comes from a report called "Climate, the Sixth 'C' of Credit," released May 19 by First Street, a climate risk financial modeling organization.
'I really wanted to prove that insurance is working, where homeowners have insurance,' Jeremy Porter, head of climate implications for First Street, said in an interview with USA TODAY.
To do that, First Street looked at dozens of severe weather events since 2000. In incidences of wildfire and severe wind, few homeowners faced distress.
Floods are a different story, however. Homeowners' insurance does not cover flood damage, so any property that's considered at risk of flood needs to carry flood insurance. But FEMA, the federal agency tasked with assessing what parts of the country are at risk, drastically underestimates the number of properties that should be covered, Porter said.
First Street reckons there are 17.7 million properties that should be covered by mandatory flood insurance – more than double the 7.9 million that lie in FEMA's 'Special Flood Hazard Areas.' The discrepancy, Porter said, is because FEMA does not account for severe precipitation in its models.
The states with the most of these additional properties are Texas, Pennsylvania, California, New York and Ohio.
While First Street's analysis found a vast majority of counties across the country has a greater number of properties in a flood risk area than what has been defined by FEMA, the most striking findings are the places where the gap between the assessments is the biggest.
For example, Letcher County in Kentucky has about 11.4% of its properties in FEMA's special flood hazard area. First Street puts that figure at 60.6%. That difference of nearly 50 percentage points is the widest margin of any county, according to a USA TODAY analysis of the report's data.
Kentucky contains six of the top 10 counties with the biggest gaps between the assessments. Some in Virginia and West Virginia complete the ranking.
In two-thirds of the floods First Street examined, uninsured homeowners were found to have experienced so much financial distress that damage from extreme weather eventually led to foreclosures. A foreclosure is the most extreme outcome of housing market distress, but it's also the easiest to track, Porter said. That means that all the various steps along the way – from mortgage delinquencies to defaults to cures – may also be occurring in storm-damaged areas, without being recorded.
First Street uses Hurricane Sandy, which battered New York City in 2012, as an example of this phenomenon. There were nearly 400 more foreclosures in the area hit hardest by Sandy, the report shows.
The areas hardest hit by Sandy had suffered during the subprime crisis – when some homeowners were charged exorbitant mortgage interest rates – and subsequent recession, and home prices had not yet started to rise again. That's another important component of the foreclosures First Street tracked: areas where home prices are rising tend to avoid falling into distress. But it's important to note that where foreclosures are seen, undamaged properties are at risk just as much as damaged ones are.
That's partially because a bad storm will impact a community overall, Porter said – services like transportation will go down, people will be unable to get to work, businesses will stay closed. Insurance costs will also likely rise, and the value of even undamaged homes may increase more slowly.
'It's almost like insurance not only protects the property, but it protects the community in a lot of ways,' Porter told USA TODAY.
For all the benefits that insurance can provide, the key challenge is that it's expensive – and getting more so.
From 2000 to 2013 or so, homeowners' insurance made up about 3% to 4% of the average monthly mortgage bill for Americans, First Street data show. But premiums have skyrocketed since that time, and now account for over 10% of mortgage payments.'There's an indirect effect of additional cost of homeownership that people didn't expect to have when they first took out their mortgage, which is being indirectly driven up because of the increasing severity and frequency of climate risk,' Porter said.
First Street's analysis of homeowner costs found that every 1% increase in an insurance premium is associated with a 1% increase in likelihood of foreclosures. As the researchers write, 'the only thing proven to prevent foreclosure is getting so expensive that it is causing foreclosures.'
First Street isn't focused on policy implications in the research report, Porter said, but given the political climate in Washington and the threats to many of the agencies that help Americans rebuild in the aftermath of disasters, it's hard not to draw conclusions.
'Any reduction in resources is only going to exacerbate the problems that we're seeing today,' he said.
This article originally appeared on USA TODAY: Home insurance protects against climate change. But millions miss out.