What is happening with climate change and insurance

Reading time: 3 minutes

TL;DR

Hot take

Insurance is getting more expensive, especially if you’re in a climate change prone area. In some cases it’s no longer possible to take out some insurance types.

If you can’t insure a house, it makes it almost impossible to take out a mortgage, or sell to someone who needs a mortgage.

Taxpayers end up providing insurance coverage or bailouts of last resort.

Explanation

With an increasing number of massively expensive natural disasters insurance companies are seeing higher and higher expenses to pay out on policies. To compensate for this they put up their insurance rates - across the board. Insurance rates go up based on risk as well, so if you are in an area likely to be impacted by climate change in future you may also see your premiums increase even if you’ve never made a claim.

Over time if the cost of insurance gets too high people will let it lapse, then run the risk of losing their homes and possessions. That’s one price of being poor. Another one in the “Poor people are disproportionately disadvantaged by climate change” column.

If you own a property that gets re-categorised as one that certain insurance policies will no longer be offered for - e.g. fire or flood, then you’re going to have a very hard time selling that property. Most banks that offer mortgages require the property to be insured. There’s not a large market of house buyers out there paying cash, so your pool of mortgage based buyers is excluded … now your house is potentially a stranded asset or at least very much lower in value than it was before.

I think this insurance trend is a canary in the coalmine for mass economic disruption as a result of climate change.

On one level - it even impacts the climate deniers and delayers, but those who can’t pay their way out of it by paying the extra premiums or moving to other areas are going to be hit the hardest. Where governments step in to save the insurance industry by underwriting policies as an insurer of last resort, all taxpayers are contributing - and missing out on services that could have otherwise been delivered by the government.

What is happening with climate change and insurance

TL;DR

Explanation

Further reading