Experts Warn of ‘Vicious Cycle’ in the Insurance Industry
Experts are sounding the alarm about a self-perpetuating problem plaguing the insurance industry, with potentially significant consequences for homeowners and future economic growth, according to reports.
The insurance industry relies on historical claims data and weather patterns to assess and price risk. However, the increasing frequency and intensity of extreme weather events are creating new challenges and financial losses for insurers, as reported by The New Statesman.
California’s experience, which was hit hard by wildfires causing around $275 billion in damages in January, serves as an example. The state established a last-resort insurance plan named FAIR in 1968. Climate journalist Christopher Flavelle noted that the number of homeowners reliant on this plan more than doubled between 2020 and 2024, as insurance companies either issue non-renewal notices or withdraw from states that are considered high-risk. While California remains a hotspot, other regions in the US have also been hit by this trend.
Despite these difficulties, insurers worldwide continue to invest in the fossil fuel industry, which is a major contributor to climate change. The burning of oil, gas, and coal is responsible for more than 75% of human-caused pollution, leading to higher global temperatures and more extreme weather.
This could create the seeds of an economic slowdown, considering how they continue to support industries with negative environmental impacts. Internal documents unearthed during a House Oversight Committee investigation show this.
“Continuing to provide reinsurance for carbon-intensive businesses and projects will become increasingly unsustainable,” Lloyd’s of London, a global insurance and reinsurance marketplace, told The New Statesman. Lloyd’s is the world’s largest insurer of fossil fuels.
However, only 15 of the company’s 51 managing agents have ceased underwriting new coal projects. A whopping 46 continue to underwrite new oil and gas ventures.
While Lloyd’s says that it will not interfere with the underwriting decisions of its managing agents, The New Statesman points out the company could adapt its policies under the Lloyd’s Act 1871 and other acts of Parliament.
For the time being, the firm appears to be assessing how their support for the clean energy market will develop under the leadership of Prime Minister Keir Starmer, who has said that gas and oil will be part of the energy plan for decades to come, according to the report.
