Insurance premiums are rising due to climate change. Extraordinary hurricanes like Helen only make the situation worse

Hurricane Helen, the climate-changing tropical storm that hit much of the southeastern United States in late September, killed more than 230 people and caused damages estimated at between $30 billion and $47.5 billion. be. But these statistics reflect the true human cost, such as the loss of a 27-year-old mother who died along with her twin babies when a tree fell from the roof of her home in Thomson, Georgia.

Hurricane Helen, among other things, demonstrated the impossibility of escaping climate change, as some of the affected communities (such as the city of Asheville) were believed to be safe from the effects of climate change. . But it also has other impacts on quality of life, such as insurance rates, which many people may not consider in relation to climate change.

Just ask Dr. Charles Nice, professor of risk management and insurance at Florida State University’s College of Business. He listed increased exposure and inflation as the third factor, climate change, when he listed three major factors driving the rise in property and casualty insurance premiums across the United States.

“As the population has increased, so has the development footprint,” Nice said. “This increases property exposure to natural disasters not seen in previous generations.”

Given the already high cost of repairing damaged assets, the one-two punch of inflation and climate change is driving up insurance premiums.

“The area of ​​natural disasters is also expanding,” Nice said. “This applies to things like wildfires, hurricane activity, tornadoes, and severe convective storms. The combination of these three factors leads to higher premiums.”

Additionally, Nice said the uncertainty of extreme weather events is factored into insurance products.

“Remember, insurance regulations want to ensure that insurance companies remain claims-paying. To ensure sufficient funding, insurance companies require more premiums and capital,” Nice explained. The resulting price hikes will inevitably hit hardest those who cannot bear the brunt.

“People who are less affluent will be paying higher costs, but they are the least able to afford the additional costs,” Nice said. This economic problem “will have a greater impact on poor Americans, because they have fewer assets to pay for additional costs. It will also have a greater impact on the fixed incomes of seniors.”

Dr. Rebecca Elliott, associate professor of sociology at the London School of Economics and Political Science, says the fundamental problems with the American health system are brought to the fore by climate change, but many others The modern economy, as well as the country’s insurance system, is ultimately characterized by high levels of entrenched income inequality in the country. Low-income Americans struggle to save and build wealth, meaning the cost burdens imposed by these disasters and attempts to cover them with insurance are extremely difficult for them to bear. are.

“In most cases, insurance rates are adjusted based on risk. In other words, the higher the risk, the higher the premium,” Elliott told Salon. “So clearly as the risks from the effects of climate change increase, those cost pressures will increase and threaten the economic security of many Americans. There is a general crisis around insurance affordability. Homeowner’s property and casualty (wind and fire coverage) and public (i.e. NFIP) insurance cannot do its job if it is not within the financial reach of those who need it. yeah.”

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This problem is not unsolvable. As Mr. Elliott pointed out, insurance companies point out that the National Flood Insurance Program (NFIP) is struggling to cover losses for private businesses due to the recent increase in the number and severity of floods. , often justifying increases in insurance premiums. Indeed, since Hurricane Katrina in 2005, the NFIP has owed the Treasury tens of billions of dollars because it hasn’t generated enough revenue to cover its losses. But Elliott says there’s another way to deal with the problem.

“Another way to increase premium income is to expand the risk pool,” Elliott said. “Currently, only homeowners with mortgages who live in public flood zones are required to have flood policies in place, and in any case that requirement is very poorly enforced. If you expand the purchase requirement to potentially all homeowners, you have far more people paying into the program, many of whom are relatively low risk, and therefore more affordable. ”

Elliott continued, “In the world of risk-based insurance ratings (public or private), the most important thing is to lower the underlying risk. When the risk goes down, the price goes down. That’s the worst case scenario. “This means moving proactively to further reduce the impact.” The effects of climate change by reducing greenhouse gas emissions will mean huge investments in infrastructure that now feel unavoidable and a reshaping of strategies to keep people safe. It’s too big. ”

In fact, Elliott suspects that individual homeowners’ metaphorical doorsteps are already exposed to these insurance-related issues. For example, Americans affected by Hurricane Helen may be in for a nasty surprise when they try to receive compensation for their losses.

“There is no doubt that most of the people affected by Helen will not have flood protection in place,” Mr Elliott said. “So many people would be surprised by that fact. They would assume that their ‘all-risks’ homeowners insurance policy would cover flooding, but it actually doesn’t. So as they dig out and clean up, they realize that they essentially don’t have the resources to cope or rebuild beyond their savings. Although only a small amount is flowing in the form of disaster relief, this is another reason to expand the purchase obligation. . ”

Nice said reformers need to view insurance as “just one piece of the climate change puzzle” because insurance plays an important role in the economy as a risk financing tool.

“Developing more comprehensive plans to manage natural disaster risk requires strong public-private partnerships that involve not just insurance, but also mortgage lenders, construction companies, and local, state, and federal government officials. We need it,” Nice said. “There are many cracks in our current system that can ultimately place homeowners at undue risk.”

Homeowners also have to take on the risks associated with location decisions, but climate change will make it more difficult to be well-informed and the problem will come full circle.

“Risk levels are constantly changing, and because siting decisions are long-term decisions (homes are built to last), the frictions that arise create a continued increase in natural disaster risk.” said Nice. “piecemeal solutions are likely to fail.”