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Martin Wahl

On May 1, the Senate Committee on Banking, Housing and Urban Affairs conducted a hearing, “Examining Insurance Markets and the Role of Mitigation Policies.” The outcome of the polarized, politicized committee’s event was predictable: the game was stacked in favor of the majority party (expected in our two-party system), with most witnesses supporting the industry’s current approach and blaming states’ and former national government mismanagement for problems, while the minority suggested alternative scenarios, invoking climate change and the privatizing of profits while socializing losses.

By focusing on mitigation efforts instead of the causes of environmental disasters, the topic of global warming was placed on the backburner (pardon the play on words). There was an attempt to blame homeowner insurance costs on the activities of illegal aliens, but that was not supported by evidence at the hearing.

So, what about us?

The Green Energy Times readership area is generally safer from environmental disasters than much of the country. Apart from flooding in river valleys, we experience nothing like the impact of a hurricane or wildfires consuming entire communities, and our property insurance rates reflect that. Nevertheless, we will likely experience rate increases in part driven by insurers spreading the costs of losses broadly to all areas.

Most of the insurance premium increases in the recent past have been in states that have experienced severe climate emergencies, but there are some outliers. According to S&P’s Market Intelligence Report from January of this year, Utah, Minnesota and Illinois appear among the top ten states with the greatest increase from 2023 through 2024, all with greater than 35% increases. By that metric, we are lucky, with these increases for our area all below 20%, while the nationwide increase was over 24%:

It is unclear why New Hampshire and Maine are deemed riskier than New York, though this may reflect risk spreading rather than risk assessment. The 44.9 % increase nationwide since 2019 is a wake-up call.

The future’s not so bright

The future does not appear much brighter if global warming is not dealt with head-on. Günther Thallinger, CEO of Allianz, a major re-insurer, predicts severe strains on the financial sector in general if properties become uninsurable – no one will provide a mortgage backed by uninsurable property. Further, he points out that focusing on mitigation and adaptation is a losing strategy.

“There is also the false comfort of “adaptation,” as many risks do not lend themselves to meaningful adaptation. There is no way to “adapt” to temperatures beyond human tolerance. There is limited adaptation to megafires, other than not building near forests. Whole cities built on flood plains cannot simply pick up and move uphill. And as temperatures continue to rise, adaptation itself becomes economically unviable.”

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Additionally, he worries that capitalism itself will be threatened: “Capitalism must now solve this existential threat. The idea that market economies can continue to function without insurance, finance, and asset protection is a fantasy. There is no capitalism without functioning financial services. And there are no financial services without the ability to price and manage climate risk.”

Standard & Poor’s S&P Global recently issued a report entitled “Hidden Cost of Climate Risk: How Rising Insurance Premiums Affect Mortgage, Relocation and Credit” that summarized their findings this way: “We find that higher premiums increase the probability of mortgage delinquency, as well as prepayment… The delinquency effect is greater for borrowers with higher debt-to-income ratios.”

Further, they found that “…higher premiums also increase credit card delinquency and deteriorate borrower creditworthiness. Our findings unveil a channel through which climate change can threaten household financial health and potentially impact the stability of the financial system.”

As reported in the article, “Time for the new Silent Majority to Speak,” on page one of this issue, the prevailing sentiment in the U.S. and the world as a whole, is that climate change is a serious issue and, supported by clear communication and participative discussion, can become a dominating influence on law and policy making.