01-32 Insurance

You are a homeowner in California and your fire insurance premium has jumped from $1500 to $6500. Or, you are a homeowner in Florida and your flood insurance has gone from $2000 to $8000.
Based on public reports, the 2019 fires in California cost the insurance industry $24 billion. Is it any surprise that insurance companies would not renew 350,000 fire insurance policies? And homeowners need insurance to keep a mortgage on their property.
To make things worse, assume that California or Florida homes in vulnerable areas that were worth a million dollars are now worth $700,000.
My own research on climate change is that the big story will be the impact on global property values. And, we are talking about trillions of dollars.
The flooding of the coastal areas of Florida from extreme weather has already impacted property values. Something like $400 billion of real estate values are at risk.
This photo shows a flooded area in Montreal following a storm. And we are getting more extreme weather even in northern nations like Canada that, on balance, are climate winners. So, we should assume that home insurance premiums will increase everywhere.
In the insurance business they have companies that buy policies from insurance companies to spread the risk. They are called “reinsurance” companies. Names like Munich RE and Swiss RE.
These big companies do a lot of research on climate change to assess the risk of buying insurance policies in places like California. Or vulnerable coastal communities in Australia or Italy.
Their problem is not having historical records on extreme weather to assess future risk. Climate change challenges for the insurance industry are quirky.
The point about insurance and climate change is that getting fire and flood insurance in so many parts of the world will just not be possible.
And what does this kind of mean? Well it will obviously mean pressures on governments to get into the property insurance business.
Will politics shift from the right to the left? My guess would be yes. Easy to be a believer in limited government if you can afford a home without a mortgage and insurance.
Then there are the billions of dollars held by insurance companies that are invested in the fossil fuel industry. The big transformation will be insurance dollars moving into renewables.
I can just imagine a phone call from my insurance agent offering me lower insurance rates if I insure both my solar house and my electric vehicle from the same company.