Image courtesy of Magdalena Kula Manchee on Unsplash
Falling under the category, It’s the climate, Stupid; in December 2024 the US Senate Budget Committee published a report entitled Next to Fall: The Climate-Driven Insurance Crisis is Here – And Getting Worse. After launching an investigation in November 2023, the Committee looked into homeowners’ insurance all across the US to understand the market conditions, and the writing is very much on the walls.
While focusing on the non-renewal of insurance policies, the Committee quickly realized that they are often indicators of market destabilization. Customers were not renewing because their rates had increased beyond what they could pay, often a 20% or more increase.
According to their data, while Florida has the highest average statewide non-renewal rate, Southern New England, the Carolinas, New Mexico, and counties in the Northern Rockies, Oklahoma, and Hawaii all had high non-renewal rates. This verifies that all types of climate-related disasters: hurricanes, hail, wildfires, severe storms, extreme rain and snowfall levels, and sea level rise, negatively impact insurance markets.
Climate change is also one of the most significant economic risks facing the United States. By comparison, over the last three decades, more than $10 trillion, nearly 35%, of our national debt can be traced to two massive economic shocks: the 2008 financial crisis and the Covid pandemic. The Committee believes that the economic impact of climate change may be even worse.
The Great Recession destroyed the financial security of families and businesses across the US and the globe and reduced federal income streams for over 10 years. The Great Recession can be credited to 8 years (2001-2009) of leadership from Republican President George W. Bush.
Thought leaders and financial experts from a wide range of industries contend that climate change poses new systemic risks to the US economy in addition to the natural disasters caused by global warming. In fact, some estimates suggest that losses from natural disasters in the US approach $100 billion yearly compared to $4.6 billion in 2000.
This has translated to an increase in insurance premiums, which means even more people are forgoing coverage, leaving them vulnerable and driving prices even higher as the number of people paying premiums and sharing risk shrinks. Shocking as it is, over 66% of homes in the United States are now underinsured.
