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Congressional Report Warns of Climate Threat to US Insurance, Housing Markets
"In the 1980s, the United States experienced an average of one billion-dollar disaster (adjusted for inflation) every four months; now, these significant disasters occur approximately every three weeks," the document continues. "2023 was the worst year for home insurers since 2000, with losses reaching $15.2 billion—more than twice the losses reported in 2022."
"Rising premiums and this issue of uninsurability could seriously disrupt the housing market and stress state-operated insurance programs, public services, and disaster relief."
The insurance industry is already responding to that stress. The publication highlights that "insurers are pulling out of some states with substantial wildfire or hurricane risk—like California, Arizona, Florida, and North Carolina—leaving some areas 'uninsurable,'" and "in many regions, even if the homeowner can get insurance, the policy covers less than the actual physical climate risks (for example, rising sea levels or more intense wildfires) that their home faces, leaving them 'underinsured.'"
JEC Democratic staff found that last year, "the average U.S. homeowners' insurance rate rose over 11%," and from 2011-21, it soared 44%. Researchers also documented state-by-state jumps for 2020-23. For increases, Florida was the highest ($1,272), followed by Louisiana ($986), the District of Columbia ($971), Colorado ($892), Massachusetts ($855), and Nebraska ($849).
The highest premiums for 2023 were in Florida ($3,547), Nebraska ($3,055), Oklahoma ($2,990), Massachusetts ($2,980), Colorado ($2,972), Hawaii ($2,958), D.C. ($2,867), Louisana ($2,793), Rhode Island ($2,792), and Mississippi ($2,787).
The report ties the rising premiums to "surging" prices for repairs, reinsurers also hiking rates, insurance litigation issues, and rate caps in some states pushing higher costs off to states that regulate the industry less. While JEC Democrats focused on the United States, as Common Dreamsreported last week, the climate threat to the insurance industry is a global problem.
"Rising premiums and this issue of uninsurability could seriously disrupt the housing market and stress state-operated insurance programs, public services, and disaster relief," the new report warns. "Given this rising threat, innovations in climate mitigation and adaptation, insurance options, and disaster relief are essential for protecting Americans and their finances."
The publication points out that "a previous JEC report on climate financial risks discussed other potential solutions like parametric insurance (a supplemental insurance plan that can pay homeowners faster), community-based catastrophe insurance that incentivizes community-level resilience efforts, and attempts to use risk-pooling, data, and AI to better price risk."
The new document also promotes the Wildfire Insurance Coverage Study Act, introduced by JEC Chair Sen. Martin Heinrich (D-N.M.) "to address these data needs and study wildfire risk, insurance, and mitigation to help Americans make more informed decisions about the risks to their homes," and the Shelter Act, which "would create a new tax credit, allowing taxpayers to deduct 25% of disaster mitigation expenditures."
The report further recommends improvements to several Federal Emergency Management Agency (FEMA) programs, including:
- Expanding the flagship pre-disaster mitigation grant funding available through FEMA's Building Resilient Infrastructure and Communities (BRIC) program beyond the nearly $3 billion it received in the Bipartisan Infrastructure Law (BIL) to meet growing demand (only 22 states received funding in FY23; although, applications were received from all 50).
- Making it easier for states to apply for FEMA's Hazard Mitigation Grant Program, which gives funds to states hit by a disaster that they can use to protect against future damage. The Biden-Harris administration recently streamlined the program's application process.
- Enacting a National Disaster Safety Board (similar to the National Transportation Safety Board), which would provide data-informed recommendations to help communities become more resilient to disasters.
- Expanding the Community Wildfire Defense Program, created by the BIL.
The JEC publication comes as the country prepares for President-elect Donald Trump to take office next month after running a campaign backed by billionaires and fossil fuel executives and pledging to "drill, baby, drill," which would increase planet-heating pollution as scientists warn of the need for cutting emissions. Republicans will also have control of both chambers of Congress.
Heinrich on Monday called out the GOP for its climate record, saying that "Republicans have denied that climate change is real for over 40 years, and as a result, homeowners are seeing their insurance costs rise."
"Homeowners in New Mexico have seen their premiums increase by $400 over the last three years because of Republicans' refusal to act," he added, citing the 2020-2023 data. "The longer climate deniers keep up this charade, the more expensive things will get."
Extreme Weather Fueled by Climate Crisis Cost Insurers $600 Billion
The report—titled, Within Our Power: Cut Emissions Today To Insure Tomorrow—"examines what 20 years of climate attribution science reveals about today's insurance crisis, explores the status of gross direct premiums from insuring fossil fuels and renewable energy activities, and analyzes the coal, oil, and gas policies of 30 leading primary insurers and reinsurers."
While climate-attributed losses from 2002 to 2022 worked out to around $30 billion annually, the financial burden was not evenly spread out over those 20 years. Instead, the report says, such losses "have recently accounted for a growing share of insured weather losses, showing how decarbonization is crucial to contain soaring insurance costs."
"The climate-attributed share of insured weather losses rose from 31% to 38% over the last decade on average, and their annual growth (6.5%) significantly outpaced thegrowth of the insured losses (4.9%)," the publication explains. "In 2022, $52 billion out of $132 billion was climate-attributed."
The other key findings are:
- Estimated climate-attributed losses for 28 top property and casualty insurers ($10.6 billion) approached the fossil fuel premiums they collected ($11.3 billion) in 2023—and for more than half the companies, they exceeded them;
- The renewable energy insurance market is still under 30% of the size of the fossil fuel insurance market in 2023, threatening to be a bottleneck for investments in the climate transition; and
- At the brink of 1.5°C, insurers are abandoning at-risk communities worldwide while enabling fossil fuel expansion that drives these risks higher—requiring immediate policy and regulatory action.
The report acknowledges that its findings arrive amid scientists' warnings that 2024 is on track to be the first full year to breach 1.5°C—the Paris agreement's target for temperature rise this century. The latest meeting for countries signed on to that treaty, held in Azerbaijan last month, concluded with what critics called a "big F U to climate justice."
Like activists and experts outraged by the conclusion of COP29, Ilan Noy, a professor focused on the economics of disasters and climate change at New Zealand's Victoria University of Wellington, stressed the importance of bolder global action in response to the Insure Our Future report.
"Insurers are fundamentally misunderstanding climate risk by failing to recognize how greenhouse gas emissions have driven up losses throughout this century," Noy said in a statement. "Unless we cut emissions sharply this decade, climate damages will grow exponentially and could overwhelm both insurers and economies."
Laurie Laybourn, director of the U.K.-based Strategic Climate Risks Initiative, similarly suggested that the climate emergency poses an existential threat to the insurance industry while discussing Insure Our Future's report with Forbes' David Vetter.
"Because insurance impacts are mounting and because we don't have an insurance system built for the way that climate change is evolving, this dynamic is only going to get much worse," Laybourn said. "As we're already seeing, governments are having to step in to effectively ensure that insurance can still exist in certain places."
"In Florida, you have a situation where flood insurance is increasingly receding and the government is having to make decisions about how and what to cover," he noted. "It's the case as well in the U.K., where major flooding events led to the creation of Flood Re, a government-backed reinsurance agency to cover places that are effectively uninsurable through private markets."
Warning of a potential "doom loop" in which climate impacts cause instability that impedes adequately ambitious action, Laybourn added that "we need systems that are more resilient so that we can continue to remain focused on decarbonization, even as things get more unstable."
The new report offers a roadmap to a more resilient insurance system. As the document points out, this is the first time Insure Our Future has included policy recommendations for lawmakers and regulators.
The publication urges insurance firms to immediately stop insuring new fossil fuel projects or any customers from the industry that have not published a transition plan for the 1.5°C goal. It also calls on insurers to set their own binding Paris-aligned targets and to divest from coal, gas, and oil companies.
The report further pushes insurers to align stewardship activities, trade associations membership, and public positions with a credible 1.5°C pathway; establish mechanisms to ensure clients fully respect human rights; and explore bringing fossil fuel companies to court "to make polluters rather than insurance customers pay."
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