The insurance industry in climate change
There have been a number of items in the news analyzing components of inflation. Most people assume groceries or gas are the reason. Nope. It’s climate change.
Multiple analyses of the Consumer Price Index (the thing we use to measure inflation) have shown car insurance and home insurance are driving that index upward. Why are these rate going up? More frequent and severe weather events are causing more frequent and severe damage to homes and automobiles.
First, the higher frequency of claims drive rates up as the insurer (correctly) perceives higher risk. Second, because of the higher frequency of claims, it is driving up the cost of each claim as parts and labor are in shorter supply.
In other words, this dynamic is feeding on itself until insurers begin to exit markets, as they’ve already done in coastal states. But this phenomenon is not limited “hurricane” states. Even the Midwest is seeing much higher rates due to a high frequency of high-intensity, low-duration storms known as “kitty cats.”
We are just getting started in feeling the effects of climate change and the insurance industry—and its customers—are buckling under the weight of this new world.
And, once enough insurers stop providing insurance, you are going to see housing and banks hit next. As existing houses lose insurance, banks will lose all security on their mortgages. If a house floods or catches fire, the “owner” can walk away, while the bank is left with an asset worth 20-30% of its original value. (We saw this dynamic in the mortgage meltdown of 2008.)
For people looking to buy or sell a house, if a house cant get insurance, a bank won’t underwrite the sale or purchase of that house. No mortgages, no housing market. And with that, you’ll see widespread economic turmoil.
