Catastrophes fueled by climate change creating an insurance crisis
By Alex Amonette
The horrific flooding in Louisiana, damaging or destroying tens of thousands of homes, may have people wondering what kind of coverage their insurance provides for such catastrophes. Here’s what my policy states:
“This policy does not cover damage to your property caused by flooding. You may be eligible for such coverage through the National Flood Insurance Program (“NFIP”), if you live in a participating community.”
It went on to advise me to contact my agent or visit floodsmart.gov to check out your flood risk.
Check your risk, indeed, because more flooding and extreme weather events are happening due to global warming. Heat-trapping gases from the 35 billion tons of greenhouse gases we add to the atmosphere each year warm up the atmosphere and change the climate, increasing the likelihood of extreme weather events. Warm air holds more moisture than cold air. So, when it rains, it really pours. Put simply,
“Just like steroids make a baseball player stronger, climate change EXACERBATES many of our weather extremes, making many of them, on average, worse than they would have been naturally,” said Dr. Katharine Hayhoe, climate scientist and Evangelical Christian.
As of August 18, record flooding that started August 8th has killed 13 people, several by drowning, damaged more than 40,000 homes and 30,000 had to be rescued from flood waters in Southern Louisiana and Mississippi. More than 8,400 people are in shelters.
Most (80%) aren’t covered by flood insurance, according to the Louisiana Department of Insurance.
And flood insurance is too expensive for low-income homeowners.
Most people who live in flood prone zones do not have flood insurance, according to the Federal Emergency Management Agency. Less than a third of the 5 million properties in flood hazard areas in our nation are insured by the NFIP. And, the NFIP is over $23 Billion in debt, according to SmarterSafer.com, which advocates for smarter natural catastrophe policies and has issued Bracing for the Storm: How to Reform US Disaster Policy to Prepare for a Riskier Future.
According to the Department of Commerce, in 2016, as of July, our nation suffered 8 weather and climate disaster events, including 2 floods and 6 severe storms. Losses were in excess of $1 billion each. More than 30 people died.
Since 1980, the cost of weather and climate disaster events in the U.S. totals $1.1 Trillion. Over 9,500 people have died.
Insurance Rates Increasing
Given the extreme weather events that occur in Florida, Louisiana, Texas, Mississippi, and Oklahoma, it’s no surprise these states have the highest insurance rates; the lowest are Idaho, Oregon, Utah, Wisconsin, and Washington.
A Montana cattle rancher friend told me his crop insurance rates are going up and that he has fire and hail insurance on his hay crop. Why? Severe thunderstorms that generate hail, tornadoes, damaging winds, and heavy rainfall, flooding. Wildfires are increasing due to climate change. U.S. heat waves are becoming more intense and more frequent, contributing to more massive and frequent wildfires and crop losses.
My local Farm Bureau agent said rates and deductibles are increasing due to “more hail, more wildfires, and more extreme weather events.” But, the Montana Hail Insurance Program did not pay refunds in 2013 in order to keep its program viable, because insurance claims for damage to crops from hail exceeded $14 million.
Cynthia McHale, who directs Ceres’ Insurance Program, explained what’s happening with insurance companies, the rates they are charging, and climate change. CERES’ mission is “to mobilize investor and business leadership to build a thriving, sustainable global economy.”
Insurers rely on historic loss data to set their premiums, and insurance regulators require this information to approve companies’ rates. It worked pretty well, when climate change wasn’t an issue, says McHale. McHale emphasized that climate change “changes everything” and that companies can no longer use “historic weather patterns and loss data to accurately predict risk.”
Extreme weather events and associated losses will increasingly cause rapid insurance market shifts. How much insurance a person gets for that dollar of premium, the policy deductible, and its limits of coverage — all of these elements of insurance coverage may be reduced. Insurance companies, seeking to minimize their exposure and cost, may not change the price, but choose rather to raise the deductible, or limit their coverage terms and conditions.
When events happen, like Hurricane Sandy — which caused $65 billion in losses in the U.S., the Bahamas, the Caribbean and Canada — or the recent flooding in Louisiana, some insurers may seek to exit the market or region altogether. Those insurance companies that remain in affected areas could drive up the price, creating a hardship for consumers, farmers, and businesses. You can’t obtain a mortgage without homeowner’s insurance. It’s the underpinning of our smooth, functioning economy. If insurance becomes unavailable, or unaffordable, and most people remain unaware of the risks of climate change, we’re headed for big trouble.
After Hurricane Sandy, SmartAsset.com reported: “One Woodbridge citizen received a check for $37.74 from Allstate after Sandy destroyed his home. Biased adjusters have deflected blame from Hurricane Sandy for certain damage claims. Claims are being handled at a very slow pace, leaving many people stranded.”
Your insurance company’s score
Retired Lt. Colonel (Army Reserves) and former Member of Congress, Mike Kreidler, is the State of Washington’s Insurance Commissioner. He has chaired the National Association of Insurance Commissioners’ Climate Change and Global Warming Work Group since 2007 and has pushed for insurers “to disclose if and how they are preparing for potential risks associated with climate change.”
Ceres produced a report in early October 2016 analyzing the results of the Climate Risk Disclosure Survey developed by the National Association of Insurance Commissioners (NAIC) and implemented by a coalition of states. The majority of U.S. insurance companies are mandated to complete it. Ceres highlights leading practices of insurers and evaluates each insurance company for the benefit of consumers, investors and regulators.
What Can You Do?
One thing citizens can do is learn about Carbon Fee and Dividend. This is a national legislative market‑based policy proposal that Congress could enact to mitigate climate change and reduce our greenhouse gas emissions. Termed the best “insurance policy” by Former Secretary of State, George P. Shultz, it puts a price tag on pollution from fossil fuels and returns the money to households as a monthly dividend check. We can all ask our Congressional representatives to support and enact it.
To protect yourself, Smart Assets.com recommends that you understand your insurance coverage and keep abreast of the terms in your policy. Make a detailed record of all your possessions and the original purchase price you paid for them. Renters need to have coverage, too.
McHale said, “No sector of our economy will be immune from climate change, and there are trillions of dollars of property exposed to chronic flooding, sea level rise and storm surge. More intense rain events, more flooding, and changes in precipitation patterns impact even property far inland along major waterways, such as the Mississippi and Colorado. Add to this the enormous and devastating impacts on peoples’ health and well being from catastrophic weather events and from the spread of diseases such as Zika—and you get a clear sense of the huge climate change risks we all face.”
We must act now, and demand that our Congress act to mitigate climate change.