Insurance Companies: Another Endangered Species

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Hurricane Ian, which savaged south Florida last year, was the nation’s second most costly hurricane in history, exceeded only by Katrina. There’s more where that came from.

It’s not just Florida that is being submerged by rising water due to climate change — the entire property-insurance industry in the Gulf Coast states is going under too. Because hurricanes have for years been increasing in number and power, damage claims are overwhelming insurance companies. More than a dozen large regional insurance companies in Florida and Louisiana alone  have recently become insolvent, leaving tens of thousands of people without protection from future damage.  

Most people with claims against bankrupt insurance companies get paid — eventually — because insurance companies have two kinds of insurance against financial failure. One is reinsurance, a policy taken out by an insurance company to cover extraordinarily large claims. The cost of that kind of insurance has been skyrocketing worldwide because of climate change, and is expected to double in Florida this year alone.

In addition to reinsurance, states such as Florida and Louisiana have created non-profit insurance associations that step in to rescue policy holders when an insurance company goes under (with funds collected year after year from the insurance companies). It’s sort of a Federal Deposit Insurance Corporation for policyholders — they don’t rescue the company, they make whole the customers. 

These associations in both Florida and Louisiana have run out of money, and to continue to function have begun to borrow large sums; the Louisiana association has already borrowed $600 million and Florida is going after $750 million. Almost all of that is going toward claims generated by Hurricane Ian last year. This year’s hurricane season starts in a few weeks. It is predicted to be “very active.” (BTW none of these companies cover damage done by floodwaters. That’s a whole ‘nother story.)

If you were the loan officer of any entity with that kind of money to lend, would you approve these deals? What expectation could you reasonably have of getting repaid?

More insurance company failures are expected even before this year’s hurricane season begins. And the companies that remain face increased assessments from their state’s insurance association, to cover the millions of dollars of interest and principal the associations must repay over the next decade or so, increased fees for reinsurance and almost certainly increased claims from future storms. 

Trying desperately to stay afloat, the insurance companies are raising their prices astronomically — not just on property insurance but on all kinds of insurance, not just in the coastal areas where the damage is concentrated but statewide. Thus the cost of insurance is not only close to unaffordable for property owners, but is becoming a substantial burden on the entire population.

There is, of course, a simple and obvious solution to this problem: a total and immediate reversal of global climate change.  

Or to put it another way; there is no solution to this problem.