Uninsurable future?

What would happen if the global risk transfer industry bubble burst? Insurance is “the oil that keeps the wheels of the global economic machine moving,” underwriting the private capital and investment returns that are the engine of capitalism. The escalating consequences of climate change are making risk much harder to calculate and hitting the profits of the insurance and reinsurance industries. Global insurance giant AON told a US Senate Budget Committee inquiry last month that in response to unprecedented catastrophe losses, “Reinsurers are raising prices, limiting coverage, and even exiting some markets to improve returns.” If profit cannot be made by offering insurance, it won’t be offered at all.

In late May, the largest provider of home insurance in the US, State Farm, announced it would not be offering new policies in California, due, in part, to “rapidly growing catastrophe exposure.” The move is part of a wave of insurance companies withdrawing from high risk states and suburbs in the US.In Florida, 15 companies have decided to stop writing new business in the last eighteen months, according to the Insurance Information Institute. Six insurance companies were placed in receivership in Florida in 2022. It’s not just happening in Florida and California. According to a recent story by NPR, North Carolina, Louisiana, Colorado and Oregon too “have all seen insurers fold, cancel policies or leave the state after repeated floods, hurricanes and wildfires.” American International Group is curbing offers in 200 zipcodes, including in places like New York, Delaware, Montana and Idaho.

As the Washington Post pointed out, State Farm also happens to have the highest level of ongoing investment in the fossil fuel industry of any US insurance company. This means the company is financing climate change, while also withdrawing its service from some of the worst affected areas. Members of the US Senate Budget Committee have now written to a number of large insurance companies, including State Farm, asking them to account for their continued financing of fossil fuels, given the evidence provided to the committee’s inquiry about the “multiple serious dangers to overall economic stability and to insurance services in particular,” posed by climate change.