Insurers are Running from Climate Change

Stormy Futures MapNew Orleans      Fair enough, I call New Orleans home and in the wake of Hurricane Katrina nine years ago, I still pay way more attention to climate change than the average Joe, partially because I’ve been there, done that, and think it’s coming again someday both here and to an area near you.  So, when Ceres, a heavily established and institutionally backed nonprofit, did a report on how big insurance companies were preparing for climate change, I knew it was worth a hard look.  Here’s a spoiler alert:  it’s almost all bad news!

            Ceres surveyed most of the insurance companies in the USA and more than 300 replied, giving them very good response.  Importantly, several states, including California, Connecticut, Minnesota, New York, and Washington, are now requiring insurance companies writing more than $100 million in policies to disclose their climate related risks, so part of the response may have been part of their own “get up to speed” drill in some of these larger markets.   The results on the Ceres grading system were pathetic.  Of the companies replying only nine ranked in the “leading” category while 83% or 249 companies were minimal or only beginning.  Only Hartford and Prudential were US-based companies in the top nine.

            Living in the swamp with receding coastline all around us in Louisiana and levees hardly reinforced up to a Category 3 storm, those grades were confirming what we already knew in our hearts.  We’ve essentially been left not high-and-dry, but in the soup to swim.  Even though I didn’t flood, sitting high and dry on the alluvial flood plain only three blocks from the Mississippi River, our home was forced into Citizens, the high-priced, high-risk last resort insurer.  Ceres essentially confirmed that’s the “new normal” everywhere.  The main response from most “property and casualty” insurers after Katrina and Sandy, has not been to prepare for climate-change risks but to abandon the markets and the risks entirely leaving it to whoever and whatever is left behind to fend for themselves.  This abandonment is especially pronounced along coastal areas in Long Island, Virginia, Delaware, and of course Florida.

            Ceres makes an interesting point, that the insurers and major businesses can run but they can’t hide, especially given the supply chain inherent in globalization.  Flooding in Thailand disrupted deliveries and production adding up to $15 billion in business losses.  With droughts in California and elsewhere in the west and everyone and their cousin from the National Geographic on down writing about the impact of climate on agriculture and food supply, this is also an area where insurers seem asleep at the switch from the board level and the executive suites down to the agents on the block.  According to the Ceres report most companies are simply behind the eight-ball in taking climate change seriously.  I’m not sure whether ideology is clouding their own self-interest and creating a weird sense of denial or whether we’re just talking about high level, major corporate incompetence.  Warren Buffet, I thought this insurance thing was your baby, what’s happening here, dude?

            The recommendations from Ceres were predictable.  They want, and we should all agree, all fifty states to require the same insurance disclosures that the first five have mandated.  Not surprisingly they also want a grading system, similar to their own report, to be adopted nationally so that consumers and regulators are on the same page, and, heck, why not?

            This climate change thing is already real, and it’s past time for insurers and everyone else to catch up before we get caught up in it any deeper.