USAToday: Climate Impacts Overwhelming Insurance Coverage

January 25, 2022

USA Today has a good piece on the increasing impacts on insurers and property owners of extreme events fueled by climate change.
Natch, I’ve got covered this in a vid, which not enough people have seen.
It’s a long piece, money quotes here.

USAToday (paywall):

That outcome is one Americans face in growing numbers as climate change ramps up the destructive forces of nature. The financial mechanisms meant to help disaster victims – private insurance and government relief programs – have never covered all the costs of disaster, but the pain is multiplying as the number of costly disasters in the USA rises swiftly. 

How swiftly? Last year, the National Oceanic and Atmospheric Administrationcounted 20 billion-dollar disasters, totaling $145 billion in damages, third-most of all time. The country had averaged about seven such disasters, adjusted for inflation, every year since 1980. In the most recent five years, the average spiked to more than 17.

The disasters also kill; they took the lives of 688 people in 2021, the most in a decade.

It’s not just major events such as Ida that are on the rise. Carolyn Kousky, a disaster finance expert and executive director of the University of Pennsylvania’s Wharton Risk Center, said smaller events, such as localized flooding, also drive up costs.

FEMA claims bear that out. From 1980 to 1984, its flood insurance program averaged annual payouts of about $89 million, adjusted for inflation. Costs have been rising ever since. In the past five years, the program has averaged almost $1.6 billion in annual payouts.

“There’s now widespread recognition that this isn’t a one-off thing, that we are on a trajectory of ever-increasing risk,” Kousky said. “We’re going to be seeing this and a lot worse in the coming years. This is not sustainable.”

Experts who study the insurance industry said they understand those frustrations, but they point to an underlying, unfortunate truth: Many natural disasters are simply too expensive to fully insure.

“Will insurance, and even can insurance, ever completely provide coverage in a meaningful way for natural disasters? The answer to that is no,” said Donald Hornstein, a professor of insurance and environmental law at the University of North Carolina. “To do so would probably cause premiums to be so high as to be unaffordable.”

Hornstein said natural disasters such as tropical storms present “correlated risk,” which means they have the power to devastate wide swaths of policyholders, and thus wipe out insurance companies. That’s why private insurers almost never cover flood damage. After a string of huge losses in the mid-20th century, companies stopped covering floods, leading to the creation of FEMA’s National Flood Insurance Program in 1968. 

That federally run program provides more than 95% of all flood insurance policies in the USA. It has been billions of dollars in debt since Hurricane Katrina struck in 2005, leaving taxpayers on the hook when Congress forgives the debt.

Many home and business owners remain uninsured or underinsured by the flood insurance program. Residential coverage maxes out at $250,000, even though the median home sales price in the USA eclipsed $400,000, according to federal data.

Insurance companies often exclude other types of disasters, such as mudslides and earthquakes. In the West, companies increasingly drop coverage of wildfires.

Experts warned that even under the best circumstances, government relief programs won’t make residents whole. Individual assistance through FEMA maxes out at about $37,000 for home damages. Other FEMA programs offer greater sums to rebuild infrastructure such as schools, roads and flood control measures, but they take years.

Using public funds to try to rebuild can lead to wealth inequities, said James Elliott, chair of sociology at Rice University. Research he performed with colleague Junia Howell shows that 15 years after a disaster, the wealth of white families increases more than it would have had the flood or fire never occurred, while the wealth of families of color decreases more than otherwise expected.

“We expected that people of color and those with lower income and renters would suffer,” Elliott said. “But what we didn’t expect was that those who were on the other side, more privileged and especially white … actually gained over time.”

One reason, Elliott said, is that disaster relief funds often go to homeowners, particularly those who have insurance. That leaves out renters and the uninsured, who typically have lower incomes and are less likely to be white. 

Officials from city councils up through Congress should implement policies that disincentivize or even restrict building in floodplains and areas prone to wildfire, experts said. Instead of paying to rebuild, they should pay to move people out of those areas after disaster strikes.

A bipartisan infrastructure bill that was signed into law late last year provides about $50 billion in climate resiliency funding, the largest such investment. Hornstein said the funds will boost FEMA’s efforts to relocate homeowners from floodplains or possibly elevate their homes and help pay for other flood mitigation projects.

The money is “a drop in the bucket,” Hornstein warned.

“The $50 billion is historic, and it’s simultaneously nothing,” he said. “The amount of money that actually needs to be spent is in the hundreds and hundreds and hundreds of billions.”

One Response to “USAToday: Climate Impacts Overwhelming Insurance Coverage”

  1. rhymeswithgoalie Says:

    As the Abandonment Asshole, I see community sentiment (especially on the part of the older generations) as a costly counter to adaptation. You think NIMBY is bad, but taking away people’s familiar homes is a problem of a much greater scale.

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