The lowdown on insuring coastal property

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For many people, owning a beachfront property is one of life’s dreamiest goals. The concept of rolling out of your bed, opening French doors and running down the sand to dive into the ocean is one we’ve all been exposed to through movies, TV and books. But as the high tide mark creeps closer to the front lawn, is this goal foolhardy?!

In Miami, real estate agents used to focus on how close a property is to the water’s edge. These days, more buyers are whipping out altitude meters to see what the sea level reading is. They are increasingly happy to switch their beachside dream for the prospect of a property with an elevated view. Buyers who are looking at sand-edge property are expecting a bargain, because the effects of climate change could one day mean their property will be consumed by the ocean.

For those who already own low-lying property, a new wish list is growing: emergency power for outages caused by storms, sump pumps to drain basements when there’s storm-driven flooding, and building a community seawall to keep the tide at bay. These are the new must-haves for sea level coastal communities.

Insurance is also becoming an issue for owners of low-lying properties. In February this year, Dechert LLP on Lexology.com said: “Climate change is forcing the commercial real estate industry to re-think the effectiveness of flood insurance that developers, lenders and investors have relied on for decades. Rising sea levels and more extreme weather events could push that reliance to a breaking point.”

ARCGIS online can show you maps of USA property at risk from rising sea levels. The flooding risk shown on these maps is not caused by storms. Sea level rise (SLR) is the problem. The landing page for these maps has a poignant photograph of a ‘price reduced waterfront’ real estate sign partly submerged on a vacant section.

In Canada, rising sea levels have been identified as the cause for an increase in flood risk, with experts cautioning that the land beneath Atlantic Canada is also sinking, exacerbating the problem further.

The UK is also struggling with climate change angst. The Financial Times says that insurance systems and government programmes have developed haphazardly, and are ill-suited to deal with the growing risks.

Downunder, in the great sun-burned land, the Insurance Council of Australia is saying that vulnerable properties are become more expensive and harder to insure. Karl Mallon, science and systems director at Climate Risk in Australia, says homeowners aren’t getting enough warning about the risks of flooding and rising water levels. In his words “there’s more consumer protection buying a bottle of shampoo than when buying a house”.

In New Zealand, it’s a similar story. Across the country, billions of dollars are invested in coastal property that could be uninhabitable within the next 30 years. While New Zealand’s major house insurers aren’t flagging the issue on their consumer websites yet, it’s no longer possible to get an online quote if you enter a property address that’s at risk. The New Zealand government is believed to be grappling with the dilemma of whether to pay compensation to beachfront property owners when climate change reality laps at their door.  

The global sea level has already risen around 9 inches since the industrial age.It’s expected to rise between 8 and 12 inches by 2050. With that in mind, here are some tips for buying and insuring coastal property:

  • Find out the estimated SLR for the location you’re keen on. If you can’t find reliable information online, ask the relevant local government body.  SLR varies around the world, because it also depends on tectonic plate movement and weather patterns.
  • Download an altimeter app to your phone. When you’re viewing property, use the app to establish how far above sea level the property sits.
  • Call the local government body to enquire about the flood history for the location you’re considering. Apart from SLR, there may be problems with local rivers.
  • If you really want a property that’s right at the water’s edge, negotiate a price that keeps the future in mind. It’s possible the property will be worthless one day, however you could get a lot of enjoyment out of it in the meantime!
  • Before you sign a purchase agreement, call your insurance company to see about insurance cover. If they’re willing to cover the property, ask what the exclusions are and always check the premium amount – quite possibly, it’ll reflect the risk involved.

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