Climate Change Impacts Insurance Rates, Experts Contend
Climate events are increasingly challenging the insurance industry, significantly impacting rates and coverage. While some industry representatives point to litigation as the primary cause of rising insurance costs, experts and consumer advocates argue that climate change is a more substantial driver.
A vehicle navigating floodwaters in Florida, a scene illustrative of climate-related insurance challenges.
The Federal Insurance Office (FIO) published a report in January that examines homeowners’ insurance pricing and climate risk. The report found that homeowners in areas frequently impacted by climate disasters are paying more for insurance, and non-renewals are more likely in high-risk areas. The study also indicated that climate change contributes to higher operational costs for insurance companies.
“Climate change causes insurance rate increases and non-renewals more than litigation against insurers,” stated the report.
However, some industry figures maintain that litigation is the main culprit. Robert Hartwig, a University of South Carolina professor, testified before the U.S. Senate in December, arguing that lawsuits against insurers, rather than climate change, are the primary drivers of rate hikes and policy non-renewals.
Regulatory Responses and the Climate Risk Connection
Katherine Hempstead, Senior Policy Advisor at the Robert Wood Johnson Foundation, discusses the impact of climate risk on insurance pricing.
Katherine Hempstead, senior policy advisor at the Robert Wood Johnson Foundation and author of “Uncovered: The Story of Insurance in America,” explained that state insurance regulators are actively dealing with the direct correlation between climate risk and insurance pricing. California Insurance Commissioner Ricardo Lara is among those grappling with this issue.
According to Hempstead, Lara is facing a difficult balancing act. “He probably felt that if they actually let the companies price for what they really think the risk is, then tons of people are going to say their insurance is unaffordable,” she said.
She added, “Regulators are between a rock and a hard place. There’s a lot of pressure on them to stick it to the companies, keep rates down. But of course, if you do that, at a certain point, the companies will exit or they’ll pull back in ways where it’s not as bad as an exit, but they’ll just drop people because they want to limit their exposure.”
In recent regulatory changes, Lara and the California Department of Insurance agreed to allow insurers to factor reinsurance costs into premiums and utilize catastrophe modeling. Hempstead views these measures as reasonable approaches, considering the link between climate risks and pricing.
Industry Perspectives and Mitigation Strategies
Todd Greenbaum, President and CEO of Input 1, acknowledges the impact of increased climate events on insurance payouts.
Todd Greenbaum, president and CEO of Input 1, a billing and payments company, acknowledged that the rising occurrence of climate events leads to more claims, which subsequently increases premiums. However, Greenbaum emphasized the importance of stronger climate mitigation measures.
Greenbaum said that insurance companies want to maintain coverage for profitability but only if the premiums align with the risk. “This is a free market economy, supply and demand,” he stated. “If people feel that owning a piece of property in Florida is just simply unaffordable because of the insurance, they’re going to move inland, or they’re going to move out of the state.”
Challenges to the Insurance Model
Joanne Doroshow, Executive Director of the Center for Justice & Democracy, criticizes the insurance industry’s response to climate risk.
Joanne Doroshow, executive director of the Center for Justice & Democracy (CJD) at New York Law School, expressed concern over the insurance industry’s framing of litigation as the primary driver of rate hikes and non-renewals, calling it a denial of the fundamental function of insurance.
Doroshow pointed to the industry’s significant profits in 2024, with an estimated $131 billion in net income and over $1 trillion in surplus.
“Insurers are supposed to be risk-bearing companies, but now they are walking away from consumers, businesses, and entire communities at the first sign of new risks,” Doroshow wrote in a response to questions. “Insurers are using this recognition of increased disasters as a chance to change the rules of the game so that they take on less risk and earn more premiums.”
