Climate change - an insurance wild card...
Insurance companies are highly sophisticated gamblers. Gamblers will take risks in return for money, but only to a degree. They like predictable risks. The unpredictable, scary and costly aspects of climate change are a challenge for all of us, and uniquely so for insurance consumers. In anticipation of the extreme weather events and rising sea levels associated with climate change, some insurance companies are curtailing coverage, increasing premiums, dropping long time customers and pulling out of entire regions in order to protect their profits and shareholders. Because of this, insurance consumers need United Policyholders' help more than ever. We're providing that help through our Roadmap to Preparedness work, including our Wildfire Mitigation and Insurance Project, and advocacy activities at national, state and local levels.
United Policyholders is helping through advocacy and the Roadmap to Preparedness
UP has been doing advocacy work at the intersection of climate change, extreme weather events and insurance since 2007. At that time, with support from the Rockefeller Family Fund, we helped launch the first Climate Risk Disclosure Survey so that regulators could monitor insurer research and actions related to climate change and help consumers adapt. A grant from FEMA/the Rockefeller Foundation's Resilient Cities program significantly boosted the Roadmap to Preparedness program through which we're creating tools and resources to help people understand and contend with a changing property insurance marketplace.
In response to climate change data, "admitted" insurance companies are reducing their market share in brush areas by dropping long time customers, leaving entire regions and imposing steep brush surcharges. While some are finding coverage through admitted competitors, many are having to turn to non admitted" (surplus lines) insurers. Policies sold by non-admitted insurance companies are not scrutinzed by state insurance regulators, nor are they backed by insolvency protection funds. A 2017 RAND Corporation study shows a dramatic increase in the market share of non admitted home insurance companies in California.
Many insurers are transferring risk back onto property owners through higher deductibles and new exclusions that drastically reduce coverage for water and other forms of property damage. Property owners are having to be more proactive in shopping for insurance and taking steps to reduce risk in order to qualify for coverage. UP is doing what we can to help people maintain insurance on their homes and businesses and support mitigation efforts across the nation.
Insurance industry reactions to climate change has left an increasing number of people and businesses between a rock and a hard place: They can't afford to pay for the increased cost of the policy their lender requires them to maintain, they can't sell their property because of the new, high insurance price tag, and their job requires them to stay where they are. So UP is working with partners in coastal areas to help long-time low and moderate income residents and small businesses whose lender-required policies have become unaffordable and/or too bare-bones to provide adequate protection.
We are also assisting elderly/fixed-income and long-time residents of rural areas who are experiencing severe economic hardship because they can't find or afford insurance on their homes. We don't want people losing homes to foreclosure and becoming homeless because the cost of their insurance suddenly jumps from $800 to $8,000 a year and they can't afford the cost or find a buyer willing to pay the high insurance price tag. We are advocating for measured, balanced solutions that protect the victims of climate change while facilitating sound decision-making and resiliency.
A complicating dynamic:
A complicating dynamic in how insurers are reacting to scientific evidence of climate change is a major change in the way they underwrite (assess and price) risk. Human underwriters and actuaries have been using historical data to assess risk, price policies and choose customers for decades. But now it is common for insurance companies to rely heavily - sometimes exclusively - on models that purport to predict the future based on algorithms instead of human underwriters and historical data. We in the consumer advocacy community have identified these models as a major cause of reduced availability and affordability of property insurance in many regions of the U.S.. The models are designed by private companies that sell them to insurance companies. You don't need to be an economist or have an MBA to understand that modeling companies want their products to appeal to insurance companies. Insurance companies that are in the business of being profitable. Modeling companies have an incentive to overstate risk to help their insurance company clients justify rate increases. Integrity problems with outcome-oriented predictive analytics are compounding the impact of climate change on insurance consumers.
Principles UP supports:
- Regulators need to maintain order in property insurance markets and prevent price gouging
- Consumers need help contending with affordability, availability, and mitigation financing challenges due to climate change
- Insurers should be partnering with their customers by providing technical guidance on mitigation, discounts and incentives for risk reduction and reduced emissions
- "Green" insurance products that allow property owners to repair and rebuild using sustainable materials and heating/cooling systems
We commend insurers that are engaged in promoting sustainable development, green building practices and "pay as you drive" incentives that reward drivers for driving less.
To help disaster victims rebuild and repair "green", we added a Rebuilding and Repairing Green unit to our Roadmap to Recovery educational workshop program in 2008.