Property-insurance companies are just like politicians in that they don’t want to talk about climate change, because if they did they would be expected to explain what they are doing about it, and they aren’t doing anything about it. Unlike politicians, who seem to be getting away with pretending ignorance, insurance companies are being presented with ever more claims, that are ever more expensive, for more and more losses. To stay in business, they are finding, they have to not only appear to be doing something, which is all we ask of politicians, they are going to have to actually stop the hemorrhaging. Tricky, when you can’t admit the patient has been injured.
In the best traditions of American Free Enterprise, the insurance companies are striding forward into the far distance, girding to protect their policyholders against any risk except those which actually exist. These are some of their favorite methods:
Denial. This is the insurance companies’ version of “Trick me once, shame on you; trick me twice, shame on me.” Many, many homeowners in New York and New Jersey after Hurricane Sandy, for example, and in Virginia after Hurricane Katrina (Wait, what? Katrina hit Virginia? Well no, think of it as collateral damage.) found that they could not renew their policies. Homes that had not been damaged by these storms, or any storms, were included. Not because of climate change, of course, but because the company had decided to reconfigure the geographic boundaries of its operations. In such a way that certain, um, geographic areas are now served, if at all, by a class of insurance that costs about three times the former premiums.
Retreat. This backing away from hard-hit areas has led to a situation where, because of climate change, storm-related damages nationwide and worldwide are climbing rapidly, while the proportion of those damages covered by insurance is declining. A groundbreaking new study of the situation by Ceres, an organization advocating sustainability in business, finds the trend is 30 years old. The year Katrina hit, 40% of property losses (only 40%?!) were covered by insurance. By the time Sandy came ashore, that was down closer to 30%.
Obfuscation. It’s not that the insurance companies do not understand the nature of the threat, they employ actuaries after all. They know, for example, that 6.5 million homes in the US, worth $1.5 trillion, are subject to destruction by storm surge. And they know that stronger, more frequent storms are generating higher storm surges. So do they simply say, look, we will not insure you against losses from climate-change related weather because, well, we can’t afford to? No they do not, for a reason I did not see coming: if they specifically exclude climate-change risks from future policies, they would be implying that the risks are covered by present and past policies, and they are scared stiff of doing that. They are even more frightened by the prospects of liability claims against big polluters who have caused climate change, by people who have suffered the effects So don’t ask, because they are not going to tell.
Rawhide Americans will tell us to just back off, let the market decide, let free enterprise reign. We tried that. Years and years ago, private insurance companies discovered they could not make a profit selling flood insurance to idiots who built homes and hi-rises on the water. So they quit. Had we let the decision of the free market stand, our coasts would look a lot different today, and our exposure to nasty weather would be a lot less. But Rawhide Americans immediately demanded that their government do something to protect their investments and their love of looking at water.
The result: the National Flood Insurance Program, offering cheap flood insurance to the worst risks in the world for pennies on the dollar of real costs. Private companies are allowed to sell the insurance, but the federal government assumes all the risks. The result is that FEMA, charged with administering the program, is deeply mired in debt that probably never can be paid. If they had done this to health care it would be called Communism.
Is it any wonder America is sinking to the status of a banana republic, unable to protect its citizens from anything — from rising water to spreading disease to vanishing jobs — while holding its oligarchs harmless from the ravages of their own doing.