Climate Wire | The president of one of the world’s largest insurance brokers warned Wednesday that climate change is destabilizing the insurance industry, driving up prices and pushing insurers out of riskier markets.
Aon PLC President Eric Andersen told the Senate committee that climate change is bringing uncertainty to an industry built on risk projections, creating a “crisis of confidence in the ability to predict losses.”
Reinsurers that help insurers pay catastrophic losses are “pulling out of high-risk areas, especially around wildfires and floods,” Andersen told the Senate Budget Committee.
“Just as the U.S. economy was overly exposed to mortgage risk in 2008, today’s economy is overly exposed to climate risk.”
Andersen testified at the Senate Budget Committee’s latest hearing aimed at drawing attention to climate risks and potential threats to the federal budget.
The hearing did not mention a federal budget, instead climate change would hurt property and casualty insurers in many ways, and a state-run insurance plan (called the FAIR Plan) for those unable to purchase insurance from companies. It was emphasized that it causes the dangerous growth of
The hearing dealt with familiar themes, but it was perfectly timed. Severe hurricanes and wildfires have plunged insurance markets into crisis in Florida, Louisiana and California, and weakened insurers in other western states such as Colorado and Oregon (climate wireDecember 23, 2022).
Florida’s National Property Insurance Company recently warned that Hurricane Ian had “substantially depleted” its reserves, and millions of people across the state could be hit if another major hurricane causes massive claims. warned that it may impose additional charges on policyholders (climate wireMarch 21).
In California, the state-run FAIR plan is amassing a $332 million deficit while premiums are too low and reinsurance is limited to cover claims from devastating wildfires Milliman actuary Nancy Watkins told the committee.
“California FAIR plans are unsustainably expensive,” Watkins said. She said an “unlimited valuation” could be imposed on insurers operating in the state if they are unable to pay claims.
“They are hanging on the possibility of the FAIR plan failing,” Watkins said.
The FAIR plan is expanding in many states. Florida’s state-owned Citizens Property Insurance Corporation currently has 1.2 million policies in force, nearly three times as many as in 2019.
Benjamin Keyes, a professor of real estate and finance at the Wharton School of Business at the University of Pennsylvania, told the commission that nationally, the number of FAIR plan contracts increased 29% from 2018 to 2021.
Increased risks from climate change and rising reinsurance costs have forced insurers to raise premiums and exit the market, leaving “homeowners with less choice, less protection and more financial distress,” Keys said. says Mr.
Watkins said when an insurer stops selling insurance in an area, it “could create a ripple effect that endangers entire communities, creating a downward spiral that’s hard to get out of.”
Watkins said the spiral could be gradual, “but a weakened market could collapse quickly due to a crisis of confidence caused by an event.
Commission Chairman Sheldon Whitehouse (DR.I.) asked how insurers are dealing with “extreme weather” caused by climate change that makes storms and other events difficult to predict. I was.
Aon’s Andersen acknowledged that it was a problem. “Old models that have been used retroactively are not as valuable for models that need to be developed for a changing climate,” he said.
This story also appeared E&E Daily.
Reprinted from E&E News with permission of POLITICO, LLC. Copyright 2023. E&E News provides essential news for energy and environmental professionals.
