Keeping Up with Climate Risks
 

"Clients need to be aware of their deductibles and how they work. We’re seeing more claim activity due to weather and many insurance carriers are now adapting a specific wind/hail deductible as a percentage of the overall property limit. As example, we’re seeing 2% deductibles (or higher) on wind/hail which on a $500,000 property is $10,000. Many property owners are not prepared to bear this financial burden."

“According to the Mortgage Bankers Association’s (MBA) September 2021 The Impact of Climate Change on Housing and Housing Finance report, the risks associated with weather and climate change are significant.  Whether it is the peril of fire, flood, or wind, climate change puts mortgage portfolios held by financial institutions at higher risk.  There is increased pressure for financial institutions to ensure that collateral properties are adequately insured against these risks.  And with outdated flood mapping and parts of the country flooding that have never flooded before, losses due to flood where flood insurance has not been required of the borrower are much more likely.  Should mortgage loans become non-performing due to an uninsured loss to the collateral property, financial institutions will be unlikely to recover their outstanding loan balances via the foreclosure and liquidation process.  The sale of damaged or destroyed collateral property may not cover the outstanding loan balance.  These potential financial shortfalls will land directly on the financial institutions’ balance sheets.  For this reason, all financial institutions that hold mortgage loans on their balance sheets should consider protecting themselves with a Mortgage Impairment policy.”