Climate Change and Insurance: Costs, Availability, and Sustainability

By Daniel Brouse
March 22, 2024

A significant factor contributing to both increased costs and decreased availability of homeowners insurance is climate change. The surge in insurance costs is primarily driven by the unprecedented number of climate-related disasters. States like California, Louisiana, and Florida now heavily rely on government aid to manage the financial burdens associated with residential property insurance.

In 2023, the United States faced 28 separate weather and climate disasters, each costing at least 1 billion dollars, marking it as the year with the highest number of billion-dollar disasters on record. Single extreme weather events are also becoming more costly. Hurricane Ida alone caused an estimated $75 billion in damages, making it the costliest disaster of 2021. Insurers paid out a staggering $99 billion in claims related to natural disasters in 2022, leading to a substantial 21 percent increase in premiums from May 2022 to May 2023.

The rising premiums aren't just a matter of cost; it's also becoming increasingly difficult to find coverage, especially in disaster-prone areas. Major insurers are reconsidering where they underwrite policies, with some, like State Farm General Insurance Company, halting the acceptance of new applications for property insurance due to rapidly growing catastrophe exposure.

Government officials have acknowledged the link between the availability of homeowners insurance and climate change. Ohio Senator Sherrod Brown and US Treasury Secretary Janet Yellen have both highlighted the decline in insurance affordability and availability due to more frequent and severe natural disasters.

Even regions traditionally less prone to disasters are experiencing insurance challenges. The reinsurance market, influenced by events worldwide, impacts rates offered by insurers, subsequently increasing costs for homeowners. FEMA is actively seeking recommendations to modify flood risk assessment procedures to better reflect the evolving climate challenges. Their efforts aim to equip communities with better tools to handle the increasing risks associated with climate change.

The impact of climate change on insurance rates and coverage illustrates the growing and unsustainable costs of climate-related disasters. In high-vulnerability areas like coastal properties and states such as Florida, Louisiana, Mississippi, Georgia, Oklahoma, Texas, Arizona, Arkansas, Alabama, New Mexico, Nevada, Colorado, California, and Washington, the convergence of rising insurance premiums, frequent natural disasters, and declining property values creates a compounding crisis. For example, in Florida, Louisiana, and California, taxpayers already subsidize homeowner insurance premiums due to the inability of private insurers to bear the mounting risks alone. In Florida, the state-owned insurer, Citizens Property Insurance Corporation, has become the largest insurer, a testament to the scale of market withdrawal by private companies.

As climate-related disasters -- such as hurricanes, wildfires, and flood -- increase in both frequency and intensity, the economic strain on both taxpayers and insurance systems is becoming unsustainable. Florida's reliance on taxpayer-backed insurance, for instance, exposes state finances to significant risk, particularly after events like Hurricane Ian in 2022, which caused catastrophic losses. Taxpayer-funded bailouts of insurance systems and rising deficits could divert resources from other critical areas, further exacerbating economic instability.

The real estate market in these high-risk zones is also feeling the effects. With increasing difficulty in obtaining or affording insurance, properties are losing value, and homeowners face the growing prospect of being unable to sell or refinance. Liquidating properties in such areas might mitigate individual financial risks, but widespread devaluation could trigger broader economic repercussions, including localized housing market collapses.

Insurance costs across sectors -- including crop insurance, property insurance, real estate policies, and transportation coverage -- are projected to rise annually as risk assessments become more climate-focused. In agriculture, extreme weather events such as droughts and floods are already inflating premiums for crop insurance, threatening the viability of farms. Similarly, transportation insurers face rising costs due to infrastructure damage from climate-related disasters, such as washed-out roads and disrupted supply chains.

To address these challenges, systemic reforms are necessary. This includes redesigning insurance models to incorporate climate resilience, investing in mitigation measures like improved infrastructure and flood defenses, and implementing policies that discourage development in high-risk zones. Without such changes, the cycle of rising costs and escalating risks will continue to burden individuals, businesses, and governments.

Measuring the Cost of Declining Life Expectancy and Quality of Life
Quantifying the cost of declining life expectancy and quality of life is fraught with complexity. How do we assign a monetary value to something as personal and multifaceted as health or the years a person can expect to live? Nonetheless, the impacts of declining life expectancy and deteriorating health outcomes in the United States are increasingly visible and consequential.

U.S. life expectancy, which remained relatively stable between 2014 and 2019, experienced a dramatic decline in recent years. In 2019, life expectancy was 78.8 years, but by 2020, it dropped to 77 years, marking the most significant single-year decline since World War II. This trend continued into 2021, with life expectancy falling further to 76.1 years. While the COVID-19 pandemic played a major role in these shifts, it also highlighted systemic vulnerabilities that climate change is likely to exacerbate.

Climate Change and Health Outcomes
The health consequences of climate change are vast and far-reaching, posing challenges to both life expectancy and quality of life:

1. Increased Pollution and Respiratory Diseases
   Air pollution remains the leading environmental contributor to premature death worldwide, and climate change worsens its impact. Higher temperatures intensify ground-level ozone and particulate matter, both of which are linked to respiratory and cardiovascular diseases. Wildfires—becoming more frequent and intense due to climate change—release massive amounts of toxic smoke, further degrading air quality and increasing respiratory illnesses.
2. Cardiovascular Strain from Heat Waves
   Heat waves, amplified by global warming, disproportionately affect vulnerable populations, including the elderly, infants, and those with pre-existing health conditions. Heat-related cardiovascular strain is a growing concern, especially in regions unaccustomed to extreme temperatures.
3. Zoonotic Diseases and Pandemics
   Rising global temperatures and habitat disruptions are driving the spread of zoonotic diseases, as seen with increased cases of dengue fever, Lyme disease, and other vector-borne illnesses. This trend not only endangers public health but also imposes additional strain on already overstretched healthcare systems.
4. Healthcare Supply Chain Disruptions
   Severe weather events, such as hurricanes and floods, disrupt healthcare delivery by damaging infrastructure and supply chains. For instance, Hurricane Helene in 2024 caused a severe shortage of IV solutions, demonstrating how climate-related disruptions can ripple through the healthcare system with life-threatening consequences.

Economic and Insurance Implications
Climate-related health challenges will inevitably drive up healthcare demand and costs, impacting individuals, businesses, and governments. Higher treatment costs for chronic diseases, coupled with increased hospitalization rates due to heat and pollution, suggest that health insurance premiums will rise significantly. However, the economic impact is not straightforward. While increased mortality might reduce some long-term healthcare costs for individuals who die younger, the societal and economic costs of lost productivity, caregiving burdens, and the emotional toll on families are substantial.

A Critical Intersection of Public Policy and Health
The decline in life expectancy, compounded by climate change, underscores the urgent need for comprehensive public health and environmental policies. Reducing greenhouse gas emissions, improving air quality, and preparing healthcare systems for climate-induced disruptions are essential steps. Additionally, increased investment in climate adaptation—such as heat-resistant infrastructure and wildfire management—can mitigate some of the health impacts, ultimately improving both quality of life and life expectancy.

In conclusion, climate change is reshaping public health in profound ways. As life expectancy trends downward and quality of life diminishes, the urgency of addressing climate-driven health risks becomes more evident. Collaborative efforts between policymakers, healthcare providers, and environmental scientists are critical to safeguarding future generations from the escalating costs of climate change on human health.

Insurance Cost and Availability

1. Increased Frequency and Severity of Natural Disasters: Climate change is leading to more frequent and severe weather events such as hurricanes, floods, wildfires, and storms. These events result in higher insurance payouts due to increased property damage, leading insurance companies to raise premiums to cover their costs.
2. Rising Sea Levels: As sea levels rise due to climate change, coastal areas become more prone to flooding and storm surges. This increased risk of flood damage prompts insurance companies to adjust their pricing models, often resulting in higher premiums for properties in flood-prone zones.
3. Changing Risk Assessment: Insurers are reassessing risk models to account for the changing climate conditions. Areas once considered low-risk may now be reclassified as high-risk due to increased vulnerability to weather-related events. As a result, homeowners in these areas may face higher insurance premiums or even difficulty obtaining coverage.
4. Reduced Availability of Coverage: In regions heavily impacted by climate change-induced disasters, insurance companies may reduce or withdraw coverage altogether. This can leave homeowners in high-risk areas struggling to find affordable insurance options, particularly for flood insurance.
5. Government Intervention: Government-backed flood insurance programs, such as the National Flood Insurance Program (NFIP) in the United States, face financial strain due to increased claims resulting from climate-related disasters. This may lead to reforms in insurance programs, such as adjustments to premium rates or eligibility criteria, impacting homeowners' access to affordable coverage.

Overall, climate change is exacerbating the risks and costs associated with homeowners' and flood insurance, posing significant challenges for individuals and communities vulnerable to its effects.

* Our climate model uses chaos theory in an attempt to adequately account for humans and forecasts a global average temperature increase of 9 degrees Celsius above pre-industrial levels. Everybody has the responsibility not to pollute. There are plenty of things you can do to help save the planet. Stop using fossil fuels. Consume less. Love more. Here is a list of additional actions you can take.

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