Can the insurance industry survive climate change?

“The 360” shows you diverse perspectives on the day’s top stories and debates.

What’s happening

The destruction wrought by Hurricane Idalia, which is only now coming into focus in parts of the Southeastern United States, will put even more strain on a home insurance industry that was already in the midst of a crisis, thanks to the skyrocketing costs of insuring property against the effects of climate change.

In just the past two years, more than a dozen insurers have stopped issuing new policies in Florida and seven companies in the state have gone out of business entirely. The insurance market in Louisiana, where sea level rise is a growing problem, has also been thrown into crisis. It’s not just the Southeast. Within the last few months, several of the largest insurers in California have cut back their business in the state because of the increased risks of destructive wildfires.

While the impacts are most acute in these hard-hit areas, the danger of expensive disasters has also caused insurance premiums to increase in other states. Many experts say California and Florida offer a preview of what’s likely to happen across the country as weather becomes more severe over time.

Major climate-fueled disasters have caused an estimated $1.1 trillion in damage over the past decade, forcing insurers to pay out far more to homeowners than they had in the past. Most have raised monthly premiums to try to balance their finances, but prices can go only so high before a majority of Americans won’t be able to afford insurance.

Why there’s debate

There’s a broad consensus that the current situation is unsustainable and will become only more dire as climate change makes extreme weather more common. There’s debate, however, over the best way to save the home insurance industry before whole swaths of the country become effectively uninsurable.

Some of the disagreement falls along partisan lines. Conservatives generally argue that lawmakers put too many restrictions on when and how much insurers can increase premiums, which they say makes it impossible for insurers to properly account for climate risks when designing their policies.

Many on the left, however, say the government should have a much stronger hand in the market by doing things like requiring insurers to give discounts to homeowners who make changes to their houses that would make them less likely to be destroyed by storms or fires. Others say government insurance, like the federal flood protection plan and state-run insurance programs, should be significantly expanded so they serve as a backstop when private companies aren’t able to provide coverage.

Another critical step is reducing the amount of damage disasters do in the first place. To accomplish this, some experts say states need to improve housing availability in well-protected areas and create incentives for people to leave risky areas. Others say it’s important not to put too many constraints on how much premiums go up, since few people will move to vulnerable places if it’s prohibitively expensive to insure a home there.

What’s next

It’s too early to know how large of a blow Hurricane Idalia will deal to the Florida insurance market, but there’s some hope that the destruction is less extensive than initially feared. One estimate suggested property damage from the storm could total between $12 billion and $20 billion, a fraction of the $113 billion caused by Hurricane Ian last year.


Government insurance programs need to be much bigger

“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 get rid of limits that stop insurers from setting sustainable prices

“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 good thing if insurance costs drive people out of the riskiest areas

“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 areas are destined to 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

For-profit companies should have no place 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 create incentives for homeowners to build more resilient houses

“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

Photo illustration: Victoria Ellis for Yahoo News; photos: Getty Images.