Prepare your wallet for climate change, natural disasters

Kristy Jiayi Xu got an unwelcome surprise this New Year’s Eve: The roof of her garage was leaking during a severe rainstorm in San Francisco. Delays in getting a contractor to fix the roof have brought unexpected costs to keep things dry, such as a dehumidifier.

“My husband and I are both from the East Coast, so we always think the rain here lasts for a day,” said Xu, a certified financial planner and chief executive of the firm Global Wealth Harbor.

For more than a decade, scientific reports have shown how climate change will probably make extreme weather events more frequent. And this might affect your wallet.

Let’s break it down. More storms typically mean more risk of damage to your home or car. And getting enough home and other insurance can be its own challenge.

Competition among insurers is shrinking in areas most vulnerable to climate change, which means higher prices for consumers, especially higher deductibles, said Amy Bach, executive director of United Policyholders, a nonprofit that advocates for insurance consumers. A deductible is the amount you pay before an insurer covers damages.

In hurricane-prone states, some insurers offer home insurance policies with separate hurricane deductibles. And insurers’ policy language keeps changing to limit what they pay for, Bach said.

Climate change contributes to rising insurance costs, but pricing risks is what insurers are equipped to do, said Jeff Brewer, department vice president of public affairs for the American Property Casualty Insurance Assn. However, legal system abuse, claims fraud and regulatory interference contribute to growing market instability in several states, he said.

If you live in an area prone to floods or earthquakes, you’d want extra insurance because most homeowners and renters insurance policies don’t cover damage caused by those disasters.

Extreme temperatures have become more frequent, which can affect crop production and household energy usage, so grocery and energy bills may rise.

“Food price inflation could be explained by a negative effect of hot summers on food production, resulting in supply shortages,” according to a 2021 report by the European Central Bank that analyzed temperature data and price indicators in 48 countries, including the U.S.

Home heating prices this winter are expected to reach the highest level in 10 years, according to the National Energy Assistance Directors Assn. Last summer, it said, cooling costs also rose.

Climate change will even affect long-term valuations of stocks and bonds, said Zach Stein, co-founder of Carbon Collective, an investment advisory firm. Some industries’ performance may hurt your investment portfolio returns. Stein predicted the most volatility in upcoming decades will be in agriculture, insurance and real estate.

What you can do

Compare home insurance options. Get quotes from insurers and consider getting help from an independent agent or broker, said Bach, who suggested TrustedChoice.com as one option.

Expand your emergency fund. Experts generally recommend setting aside three to six months’ worth of living expenses in a savings account.

Consider banking and investing to support environmental causes. Look into mutual funds or roboadvisors that consider environmental, social and governance factors.

“Storm-proof ” your property, such as having sandbags or installing fireresistant vents, to reduce potential damage before a big weather event.