Insurance Is Ready For A Disruption

Fifth Wall Newsletter: https://mailchi.mp/fifthwall/buildings-get-smarter-about-wastewater

The news: Two major property insurers, Allstate and State Farm, won’t offer new policies to homeowners in California. The companies cite increasing wildfire risk and soaring construction costs as the reasons.

Big picture: While California is dominating the news now, an insurance crisis already exists elsewhere in the country. In Louisiana at least 10 insurers pulled out of the state in 2022. And in Florida, at least six insurers left with a couple dozen near insolvency by the end of the same year.

The cost: In 2022, damages from extreme weather and climate events totaled $165 billion, according to a NOAA report. Hurricane Ian was the costliest at $112 billion in damages. Droughts and heatwaves came in next at $22 billion. Insurers see the climate crisis as the biggest long-term threat, according to Vox.

Digging deeper: Forecasting models further complicate the tension between insurers, property owners, and policy makers. In California, regulations restrict insurers from using models for wildfires that would consider the growing risks of the climate crisis. Another instance in North Carolina: Lawmakers outlawed insurers from using a forecast from researchers which said water levels could rise by 39 inches in the next century. Property owners were concerned about their assets because in that scenario they’d be uninsurable.

Looking ahead: “Insurance companies aren’t just preparing for climate disasters—they hope to prevent them,” Vox’s Umair Irfan writes. Many insurers have pushed for fire safety standards and building codes that reduce flood risk because they have an incentive to mitigate loss. And there are even insurtech companies, like Kin that focus specifically on providing affordable policies for homeowners in states most impacted by the climate crisis.

For more: The $5 trillion insurance industry faces a reckoning. Blame climate change.