Severe Weather’s Impact on Insurance Companies
Several industries are affected by climate change and severe weather, but insurance has taken a significant hit due to the last couple of years’ severe weather events. Insurance companies base their rates on risk. The more likely that a claim will be made, the higher the policy will cost. Naturally then, as severe weather increases in frequency and severity due to a more volatile climate, insurance premium costs will increase in areas that are most impacted. Unfortunately, increasing premiums only in those affected areas isn’t possible as eventually the cost would be too high for people to afford.
To avoid this, insurance companies and regulators spread a percentage of the costs over all policyholders. That means rates increase no matter where you live. The New York Times says this will be harder to navigate as climate change gets worse, but for now, it’s how the industry balances the scales. (nytimes.com)
Our Changing Atmosphere is Impacting Insurance in a Big Way
In 2022 alone, weather related disasters caused $175.2 billion in damage, according to the National Oceanic and Atmospheric Administration. There were 18 separate billion-dollar weather and climate change disasters and 474 deaths. (NOAA)
The signs of increasingly unprecedented weather are all around us. From the annual onslaught of forest fires in California to the growing number of tropical storms reaching farther north than ever before, we are facing a new reality of stronger weather events occurring with increased frequency.
Hurricanes
The 2021 Atlantic hurricane season was the third-most active on record and produced 21 named storms. The most destructive storm to make landfall in the United States was Hurricane Ida, which struck Louisiana as a Category 4 storm in late August. (thezebra.com) One of the hurricanes (Ida) was so severe, the hurricane led to the failure of two insurance companies in Louisiana due to the extreme amount of claims for property damage in the aftermath of the storm. (thezebra.com)
While the 2022 hurricane was not as severe in terms of number of hurricanes, it produced one of the worst hurricanes in Florida history. Hurricane Ian was a powerful Category 5 Atlantic hurricane, the third-costliest weather disaster on record, the deadliest hurricane to strike the state of Florida since the 1935 Labor Day hurricane. (AccuWeather)
Since early 2022, many insurers and the reinsurers who back their policies have announced they are either scaling back their business or discontinuing their coverage in Florida entirely. An increasing number of Florida insurers have also fallen into insolvency. (insurance.com)
Danny Sands, owner of Brightway Insurance, an insurance agency based in Jacksonville, Florida, indicated that those in the market have never seen this number of insurance companies go out of business in such a short period of time. (insurance.com)
Florida’s state-backed insurer, Citizens Property Insurance Corp., is becoming more popular as many Florida residents are dropped by their private insurance companies. Florida’s Citizens Property Insurance predicts to hit a record with nearly 2 million policies in 2023.
There are several factors contributing to the destabilization of the insurance market in Florida. One of the biggest factors being severe weather. Flooding and wind damage from hurricanes is getting more common in the United States, and that trend will accelerate and threaten millions of people as the Earth’s atmosphere continues to change according to new research. While the number of storms may not increase substantially, the ones that do occur are stronger and create more damage. (NPR)
Wildfires
In July of 2021, more than three times as many acres had burned compared to the previous year. (thezebra.com) Despite the 2021 wildfire season being so severe, the 2022 season was even worse. Nationally, there were about 69 thousand wildfires reported in 2022, compared to slightly less than 59 thousand wildfires reported in 2021. These wildfires consumed over 7.5 million acres nationally, compared to only 7.1 million acres in 2021. (NIFC)
The increase of severe drought and high temperatures lead to this increased fire activity across the United States. As the number and severity of wildfires continues to increase, insurers are reluctant to renew policies in affected areas. Many people living in this area also find that their premiums skyrocket as insurance companies, caught off guard by these severe events, struggle to pay immense property loss claims.
Specifically in California, both State Farm and Allstate, two giants in the insurance industry have pulled back from the California’s home insurance marketplace, saying that increasing wildfire risk and soaring construction costs have prompted them to stop writing new policies in the nation’s most populous state. (AP News)
Winter Storms
Much of the South lacks the infrastructure to deal with serious winter weather since serious winter weather isn’t common. And while 2022’s winter season was not particularly severe, 2021’s winter season was. For example, 2021 saw an intense winter storm that affected much of the Southwest and led to financial losses calculated to be $130 billion. Insurance analysts estimated that Winter Storm Uri led to the largest number of insurance claims in the state, topping Hurricane Harvey. (thezebra.com)
What Can Be Done to Combat Increasing Premiums?
Government
As our changing climate is making storms stronger and more destructive, the Treasury Department has requested that insurance companies provide more pricing data so they are able to analyze how mate-related disasters are driving up insurance rates around the country (CNN).
The data could ultimately be used to determine whether changes are needed in the US insurance market, which has been reeling from back-to-back years of intense weather events (CNN).
At the end of the day, insurance companies need their premiums to stay affordable. Just like any product, if the price gets too high, people opt out. Or, at best, they resort to the cheapest product. Neither of those options are sustainable for the insurance industry.
To help steady the boat rocked by climate change, the Insurance Information Institute says companies are strategizing to lessen the crisis. Such strategies include paying for more research and working with politicians for solutions. (iii.org)
Better weather data
A key element in evaluating probability and risk is data. The more insight you can get on a situation, the better you can confidently calculate outcomes. Since one of the biggest elements of risk to insurance companies is weather, they need the fastest, most accurate weather data possible to make the most informed decision. These informed decisions can be the difference in them becoming insolvent, and canceling plans versus calculating the best premiums both to sustain the organization and the best coverage and value to their policy holders as possible.
Climavision is able to supply these key insights – in fact we are armed with several datasets and tools that no one else has.
With our radar network, space-based and other unique observational data, advanced quality control, and cloud-based tech platform, we’re gathering more unique observations and using a higher percentage of the existing global observations than ever before.
These novel data insights are inputs into Climavision’s Horizon AI forecasting Suite encompassing Horizon AI Global, HIRES, Point and Subseasonal to Seasonal models. These advanced NWP models created by Climavision Meteorology experts, are powered by our proprietary tech platform and advanced AI algorithms. Combined, all of these factors produce a faster more accurate forecast for insurance organizations. Armed with this competitive insight, Climavision clients can confidently make critical decisions and better mitigate the risk of severe weather. Contact us to learn more.
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