Hurricane Idalia’s damage, which is just now becoming clear in some parts of the Southeastern United States, will put even more pressure on a home insurance industry that was already in a crisis because of the skyrocketing costs of protecting property from the effects of climate change.
In Florida, more than a dozen insurance companies have stopped selling new plans and seven companies have gone out of business in the past two years. In Louisiana, where sea level rise is becoming a bigger problem, the insurance market is also in trouble. Not only in the Southeast. In the last few months, some of California’s biggest insurance companies have cut back on their business there because of the higher chance of wildfires.
Even though the effects are worst in these hard-hit places, insurance rates in other states have also gone up because of the risk of expensive disasters. Many experts say that California and Florida show what the rest of the country can expect as the weather gets worse over time.
Over the past 10 years, big disasters caused by climate change have caused an estimated $1.1 trillion in damage. This has forced insurance companies to pay out much more to homes than they used to. Most of them have raised their monthly payments to try to get their finances in order, but prices can only go so high before most Americans can’t afford insurance.
What’s the fuss about
Most people agree that the way things are now can’t last and will only get worse as climate change makes extreme weather more regular. But there is disagreement about the best way to save the home insurance business before large parts of the country stop being able to get insurance.
Some of the disagreements are about which party is right or wrong. Conservatives usually say that lawmakers put too many limits on when and how much insurance companies can raise premiums. This, they say, makes it hard for insurance companies to design plans that take climate risks into account in the right way.
Many people on the left, on the other hand, say that the government should have a much bigger hand in the market. They say that the government should do things like require insurance companies to give discounts to homeowners who make changes to their homes that make them less likely to be destroyed by storms or fires. Others say that government insurance, like the federal flood protection plan and state-run insurance programs, should be greatly increased so that it can fill in when private insurance companies can’t.
Another important step is to make disasters do less damage in the first place. Some experts say that for this to happen, states need to make more homes available in safe areas and give people reasons to leave dangerous areas. Others say it’s important not to put too many limits on how much premiums can go up, because if it’s too expensive to cover a home in a dangerous area, few people will move there.
The Next Step
It’s too soon to know how bad Hurricane Idalia will be for the Florida insurance market, but there is some hope that the damage won’t be as bad as first thought. One estimate said that the storm could cause between $12 billion and $20 billion in damage to property. This is a small amount compared to the $113 billion in damage that Hurricane Ian did last year.
Various perspectives
Government insurance programs must be significantly expanded.
“As insurers leave vulnerable areas … a public backstop for the highest losses would provide more certainty for insurers who want to offer coverage in vulnerable areas while creating a stronger safety net for consumers.”
David Arkush and Carly Fabian, San Francisco Chronicle
States must eliminate restrictions that prevent insurers from establishing reasonable rates.
“Costs are soaring, but [insurers] can’t raise rates by enough to cover them. It shouldn’t take a degree in economics to realize that many have decided their best choice is to exit the market. … Price controls — hello, rent control — produce shortages and should be avoided.”
Editorial, Las Vegas Review-Journal
It’s a positive thing if insurance rates drive people away from the most risky locations.
“More and more, homeowners are also paying for the damage that climate change will cause to their property—and they should be paying. If the continuing risk of fires, hurricanes, and other weather-related disasters isn’t enough to make Americans think carefully about how and where to build a home, perhaps the rising cost of insurance might concentrate their mind.”
Juliette Kayyem, Atlantic
Some locations will inevitably become uninsurable.
“Ultimately, though, it will be impossible to safely live in some areas. That’s already true for dozens of neighborhoods and towns that are relocating away from rising seas and storms, from Alaska to Staten Island to South Louisiana.”
Michael Copley, Rebecca Hersher and Nathan Rott, NPR
There is no role for for-profit companies in the home insurance market.
“We face an undeniable reality: We cannot rely on private insurance alone to protect our homes from climate change, nor should we. We must develop comprehensive policies that intertwine housing and climate needs while ensuring the course forward is dictated by the people, not just Wall Street and the insurance industry.”
Caroline Nagy, Sacramento Bee
States must incentivize householders to construct more resilient homes.
“One way to resolve that tension is to reduce the riskiness of living in California and Florida so that claims are smaller on average and policies can be cheaper and more available. To their credit, both states are strengthening building codes and rewarding homeowners who take extra measures to protect themselves.”
Peter Coy, New York Times
