The Insurance Wake-Up Call - 329

 There is a bit of dark humor among climate scientists.  You cannot blame them. They have known the physics of climate change for over a hundred years and have been warning us about the risks. As we have discovered, the cost of dealing with natural disasters is expensive and will increase.

 

The scientists, seeing little was being done to cease burning fossil fuels and themselves becoming targets of fossil fuel-sponsored misinformation, simply said, "If you cannot understand the science, you will when you get your home insurance bill."

 

Today, people's insurance bills are going up. In some places, you are unable to even get insurance.  A relative of mine has a modest family vacation trailer in Naples, Florida. Over the years, they have kept a keen eye on the requirements of their insurance companies.  Your contract may not be renewed if you do not meet the insurance company's requirements. My relatives still have insurance, while many of their neighbors cannot afford rising premiums, or the insurance companies no longer cover them.

 

Many people in Florida or elsewhere have their wealth tied to their trailer or home. Losing their trailer or home causes an immediate economic collapse.

 

Currently people are moving into Florida faster than out. But will this continue? For homeowners in high-risk areas, they face a rather discomforting choice. If they stay and can afford the insurance, their property will have a climate python wrapping itself around their home, slowly squeezing out money. The demand for homes in high-risk areas are slowly losing value while simultaneously insurance premiums climb.

 

And even with insurance, will policyholders receive a payout if their home succumbs to fire or flood? Often, a clause omits payment for flooding, which is far and away the primary source of most extreme weather destruction.

 

Additionally, the big re-insurance companies have belatedly learned scientists are not liars. In the last decade, reinsurers have discovered regions prone to climate disasters are also places prone to economic disaster. In these places, they refuse to re-insure the insurance companies. If disaster strikes in mass, the smaller insurance companies will not have enough money to pay out all the claims without a contract with a reinsurer. These insurance companies where people take policies will most likely go bankrupt. Bankrupt insurance companies cannot pay anyone anything.

 

The new climate drama is playing out worldwide.  In the U.S., Florida and North Carolina are the places currently getting our attention. Before, it was the fires of California, Washington, and Oregon, while Texas has had both fires and floods.

 

When the climate worsens and private insurance companies cannot pay claims, the Federal Emergency Management Agency, (FEMA) and other federal agencies are expected to step in. Thus, taxpayers are footing the bill.

This situation is untenable. Since we have not done enough to curb our greenhouse gas emissions, high-risk areas will continue to be prone to climate disasters. If our government continues to finance rebuilds in areas almost certain to get flooded or burnt again, it is wasting taxpayers' money. But the decision to inform people who have lost a home they love that they cannot receive money if they choose to rebuild in the same high-risk area is a path fraught with political problems.

 

For most of us, our home is the most expensive thing we own. The best way to avoid the climate python is to build in low-risk areas. We carry insurance to protect the keystone of our wealth. Insurance companies are looking for ways to pull out of high-risk areas. If we are going to make a wise home purchase, how can we avoid the climate python trap?

 

Real Estate companies are starting to help us. Some are beginning to rate climate risk. Redfin, Realtor.com, ClimateCheck, and Zillow are analyzing regions and will publish climate risks with their listings.

 

One company, AlphaGeo, has made it its business to rank risk worldwide. Their product is a risk assessment for six major hazard indicators (Heat Stress, Wildfire, Coast Flooding, Inland Flooding, Hurricane Wind, and Drought). They do this analysis for every location on Earth and for four different years (2025, 2035, 2050, and 2100).

 

AlphaGeo knows governments will make a massive difference in future weather. For example, if we vote Democratic, we will keep the current solutions and hopefully embrace new ones.  If other countries follow our lead and take the Paris Climate Accord seriously, this responsible path would be AlphaGeo's most optimistic forecast.

 

Alternatively, if the voters return Donald Trump to the presidency, which means burning more fossil fuels, this would be the most pessimistic scenario of the four emission scenarios calculated by AlphGeo. The higher the emissions, the greater the hits.

 

The range of opinion on climate change is mindboggling. On one side of the spectrum, 100% of the world's most reputable science organizations and 99% of practicing and publishing climate scientists have told us the climate threat is real and we had better accelerate our transition to clean energy.

 

A late but enthusiastic climate change believer is the re-insurance companies. For businesses with immense amounts of capital, they have been slow. The rapid degradation of weather worldwide with the resultant massive payouts has been a loud fire and flood alarm.  

Today, re-insurance companies are hiring climate scientists and contracting with companies like AlphaGeo to inform them where the worst risks are. When these are identified, they pull their contracts with the smaller insurance companies, putting the insurance companies we make contracts with at risk.

 

The government is in a pickle.  NASA, NOAA, FEMA, EPA, SBA, DOE, and DOD professionals know climate risk is real and are trying to do something about it. The country will go broke if these agencies continue to fund people and industry to rebuild in high-risk regions.

While our government is slow to react, we cannot blame it for this. How can the government make intelligent climate decisions if voters cannot elect politicians willing to speak the climate truth?

 

With the elections coming up, where does the electorate stand? According to Pew Research, nearly eight-in-ten Democrats (78%) describe climate change as a major threat to the country’s well-being, up from about six-in-ten (58%) a decade ago. By contrast, about one-in-four Republicans (23%) consider climate change a major threat, a share that’s almost identical to 10 years ago.

 

References:                                                                                                                                      Washington Post: "As hurricane seasons worsen, taxpayers subsidize people to live in risky areas."

Washington Post: “Where climate change poses the most and least risk to American homeowners."

Wall Street Journal: “Storms be Damned, Florida Keeps Building in High-Risk Areas.”

 

Final note: 430 miles north of us, the same relatives who own a trailer in Naples also have a cabin in Canada. This summer, a tornado swept through, knocking down 80 trees on their property.

Extreme weather can be found anywhere. Climate change simply makes it more likely everywhere.