The climate crisis is reshaping the insurance industry in profound and alarming ways, as documented in recent reports by The New York Times. Insurers retreat from high-risk areas, citing growing losses from increasingly severe and frequent disasters such as wildfires, hurricanes, and even smaller events like hailstorms. Since 2018, more than 1.9 million home insurance policies have been nonrenewed, a trend that extends beyond the coasts to inland areas like Wyoming and New Mexico. These nonrenewals destabilize housing markets, leaving homeowners unable to secure mortgages and communities vulnerable to falling property values and reduced tax revenues.
This retreat has forced government programs to step in, but these interventions come with challenges, including potential incentives to build in high-risk areas. As Carolyn Kousky, an expert on disaster insurance, explained at Techonomy Climate, “We need stronger building codes for new development that take account not just of today’s risk, but the risk we’re going to see into the future.” Her insights illuminate the systemic nature of the problem and underscore the urgent need for collaborative solutions between the insurance industry, policymakers, and local communities.
Carolyn Kousky, an expert on disaster insurance, offers a clear and urgent analysis of how the climate crisis is reshaping the insurance industry and its far-reaching effects on homeowners, housing markets, and local economies. In a recent interview, she explained, “As the planet continues to warm, we’re seeing increases in the frequency and severity of a range of weather-related perils. And as that risk grows, insurers are paying out more and more in claims, and it’s becoming more difficult for them to profitably offer insurance coverage against these types of disasters.”
One of the critical factors driving this transformation is the combination of larger-scale disasters, like hurricanes and wildfires, and smaller-scale but increasingly frequent events such as thunderstorms and hail. “It’s not just the big events,” Kousky noted. “Just bad thunderstorms and hail are increasing everywhere in the country, and they’re paying out more and more for those types of losses as well.”
Kousky emphasized how these pressures have forced insurers to raise prices and, in many cases, withdraw from high-risk markets altogether. “As they have to pay more claims, they have to raise their prices, and as they have to raise their prices, then people feel it hitting their pocketbooks pretty profoundly in some parts of the country,” she said. “Recently, we’ve seen that the growing risk of disasters has been coupled to also increasing costs and rebuilding from COVID-era supply chain and labor market disruptions, and our prior period of high inflation. All of that has really created this perfect storm where we’re seeing rates increase dramatically around the country.”
These rising rates and nonrenewals are not confined to traditionally high-risk areas like Florida or California. “Places where the market’s really starting to get stressed are also growing beyond Florida,” Kousky explained. “Other areas of the Gulf Coast, Louisiana and Texas come to mind. California has been struggling with their wildfire coverage, as has Colorado and other places. So it’s really, yeah, it’s growing.”
When private insurers withdraw from high-risk regions, government-backed programs often step in to fill the gap. However, Kousky pointed out the complex dynamics and potential downsides of such interventions. “What happens when the private sector withdraws is the government usually steps in in order to protect our housing markets and people’s recoveries,” she said. “So, for example, decades ago, insurers stopped offering flood coverage because of the problem with how costly it is to cover flood damage, and so we have a federal program that provides in excess of 90 or 95% of all residential flood insurance nationwide.”
However, this migration of risk from private insurers to public programs creates a tension in policymaking. “On the one hand, it’s really important that people have access to insurance,” Kousky acknowledged. “But on the other hand, if you make it cheap or available in places that are really too risky, are you creating incentives for us to keep building in places that are really not safe and too costly to keep rebuilding?”
Kousky stressed the need for stronger collaboration between the insurance sector and public policymakers to build long-term resilience. “We need stronger building codes for new development that take account not just of today’s risk, but the risk we’re going to see into the future,” she said. “Unfortunately, given the fact that we didn’t rapidly decarbonize, we are locked into growing risk for decades. So it’s not as easy as some new standards. We have to look out over the life of our buildings and build them for that climate future.”
Source: NYTimes
The long-term challenge is daunting but unavoidable. “We often see a lot of pressure, both for policymakers and the private sector, to do things that might be profitable in the short term but are setting us up for longer-term consequences,” Kousky explained. “Some of those interventions might make insurance really cheap now, and that seems like a good idea because it’s helping the housing market, but if you’re just encouraging people to stay in places that are going to have enormous amounts of damage in the future, what’s that tradeoff look like?”
Despite these challenges, Kousky remains optimistic about communities taking steps to improve resilience. “There are lots of communities that are thinking really hard about how they build resilience and keep their residents thriving in the face of rising risk,” she said. “And there’s also been a huge rise in federal dollars for these types of investments.”
Her perspective underscores the urgency of addressing the insurance crisis as both a symptom and a driver of the broader climate emergency. “At the end of the day, it comes down to reducing risk,” she concluded. “If we want insurance to cost less, we have to invest in changes that make properties safer.”
