Climate change leaves insurers struggling to keep up

12 Juli 2022

Photo: Pixabay/paulbr75

Insurance is a multi-trillion-dollar industry and one that is experiencing significant challenges as rising global temperatures alter the environment.

Climate change is increasing risks of property damage and adverse health effects. As a result, insurance companies may experience some of the costliest years in history as the frequency and intensity of hurricanes and other natural disasters increase.

Insurance agents and environmental professionals are working together to reduce property and human health risks because rising temperatures directly impact the security and long-term stability of properties.

As sea levels rise the risk of coastal flooding increases. Shrinking coastlines can place residents and their waterfront properties at risk for significant damage; at the same time climate change impacts global evaporation rates, which, too, increase flood risks.

Rising temperatures can cause prolonged droughts in some regions and increased precipitation in others. Droughts and excessive rainfall can harm properties and human health. Extensive drought periods increase regions’ risks of experiencing wildfires.

Drought-related wildfires in California destroyed some 10,500 properties in 2020. Some residents also experienced fatal effects during the fires. Insurance professionals are exploring climate change’s effects on property damage and human health to determine industry impacts.

How is climate change impacting the insurance industry?

Increasing property damage and health hazards directly impact the severity and frequency of insurance claims. Some insurance companies are unable to keep up with the increasing number of claims. In some regions, companies have stopped providing specific coverage to their customers.

Other insurers are increasing premiums for clients in high-risk areas. Rising premiums affect the stability and loyalty of insurance companies’ customers. Clients may end their contracts with certain companies to access better coverage.

Many insurance companies struggle to maintain business in high-risk areas like California. Wildfires and prolonged droughts cause insurers to limit their coverage. The number of natural disasters impacting insurance rates rose by nearly 250% over the past three decades.

Environmentalists expect the frequency and intensity of disasters to continue rising as climate change worsens. Insurance companies may experience significant financial losses if humanity keeps polluting the atmosphere.

Calculating health risks

Insurance professionals are calculating risks and determining potential cost fluctuations relating to climate change. Agents calculate health risks by assessing the potential dangers associated with different regions. Greenhouse gas emissions directly impact individuals’ health risks.

High-emission regions increase residents’ risks of developing respiratory health. Long-term exposure to poor air quality may cause wheezing, chest pain, asthma attacks, and other uncomfortable symptoms. It also increases people’s risks for lung cancer, stroke, heart attack, and other life-threatening conditions.

Insurance companies also calculate climate-related health risks by determining clients’ proximity to wildfires. Inhaling smoke and getting trapped in burning structures directly impact individuals’ safety. Heatstroke from rising global temperatures affects clients’ health and well-being.

Insurance companies are increasing premiums to protect their clients’ health coverage. Older customers experience the highest rates as insurers raise premiums by nearly half of their original costs. Expanding premiums help companies cover more medical costs as health risks increase.

Calculating property risks

Insurers are also calculating new property risks based on climate change. They assess residents’ proximity to the ocean and rising sea levels while setting their insurance rates. Coastal property owners may experience higher flood risks compared to other residents.

They also may experience significant damage during hurricane seasons. Climate change is increasing the amount of rainfall and flooding from hurricanes. Homeowners experience higher flood risks, roof damage, and vehicle damage in storm-prone areas.

Insurance companies are also increasing monthly rates for homeowners in drought-ridden areas. In the United States, about 26 million residential propertiesare in wildfire-risk regions. The risk of experiencing property damage from wildfires increases as climate change worsens.

Agents calculate a home’s potential damage from flooding, storm impacts, and wildfires before creating a plan. Individuals’ monthly premiums reflect their properties’ climate risks.

How is the insurance industry responding to climate change?

Insurance professionals are responding to climate risks by adjusting their practices. Some companies are rewriting their health insurance policies in relation to new health risks. Professionals are determining which demographics are experiencing the highest health risks relating to climate change.

They are also modifying health risk factors for intervention. Other insurers are identifying areas for improvement in the health care sector. Insurance companies can work with national alert services and emergency response professionals to minimize fatal health effects.

Informing all individuals of dangerous heat waves or poor air quality can help residents protect themselves. It also decreases the number of health conditions relating to climate change. Insurance companies may respond to changing property risks by educating their clients.

They may help customers upgrade their properties to reduce climate-related damage risks. Professionals can also work with local inspectors to inform homeowners of their risk of damage.

The insurance industry is falling behind when it comes to the climate crisis, which is why clients may want to take a proactive stance and express their personal concerns about climate change’s effects on their properties and safety. Doing so can ensure the best available coverage based on risks and needs in the interest of improved coverage, which minimizes stress and increases quality of life.

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