A new AM Best commentary on the latest winter storm to hit Southern California drives home the growing risk and the financial volatility that weather-related losses pose for the insurance industry.
According to the commentary, titled “Changing Weather Patterns, Climate Conditions Increase Challenges for Property (Re)Insurers in California,” California’s recent winter storm is part of a growing list of examples of climate-related risks that are changing things for property insurers.
The commentary notes that changing climate conditions and changing weather patterns could worsen if extreme events continue with greater frequency, particularly impacting insurers whose property portfolios are concentrated in California.
It cites a late December storm that caused flooding and mudslides in the state’s coastal regions, areas that could be hit again with flooding when the spring snow melt comes. The commentary notes the storms were preceded by persistent drought conditions, and that population growth in catastrophe prone areas in California has led to significant economic and insured losses.
“Flooding, snowstorm, mudslides and wildfire risks continue to worsen and could cause more reinsurance capacity to retreat from property risks and insurers will reassess their opinion of rate adequacy for their property insurance risks in the state,” David Blades, associate director, industry research and analytics for AM Best, said in the commentary.
The commentary notes that pricing property risks based on prior experience can be particularly challenging because catastrophe models have not yet fully taken into account what is becoming a “new normal.”
FAIR Plan
The California FAIR Plan wants state regulators and lawmakers to be mindful of the impact climate change is having on the state’s insurance market, and it wants policymakers to “consider unintended consequences of increasing commercial insurance limits.”
The state’s insurer of last resort recently put out a statement about the impact of worsening, “climate-driven wildfires” on the state’s insurance market, and California consumers.
The California FAIR Plan began offering increased coverage limits for commercial and business properties, approved last year by California Insurance Commissioner Ricardo Lara.
The maximum building coverage limit for commercial policies increased from $3 million to $5.6 million, and the maximum limit for all other coverages increased from $1.5 million to $2.8 million. This represents a new, combined limit of $8.4 million in total insurable value at a single location, nearly double the previous limit.
The latest increases were taken up for discussion in a Senate Insurance Committee informational hearing this week.
A statement from the CDI indicated that one of Lara’s top priorities is giving Californians more options for property insurance, and that his actions regarding the FAIR Plan are aimed at maintaining it as a strong safety net giving temporary protection for businesses and residents.
“Through his investigative hearing of the FAIR Plan last July, he continues to undertake a systematic assessment of further changes that should be done to help consumers, including increasing its coverage limits which he has done previously, in partnership with the FAIR Plan,” the statement reads.
A statement from the FAIR Plan encourages policymakers “to consider the potential ramifications of increasing the FAIR Plan’s commercial coverage limit from $8.4 million to $20 million” as members of the Legislature recently urged the CDI to order the FAIR Plan to do.
“Such a dramatic increase, without adequate rates and the net cost of reinsurance in ratemaking, could further destabilize the overall voluntary insurance market and adversely impact insurance customers, including those residing outside the wildland urban interface,” the statement continues.
Back-to-Back Hurricanes
A new study says back-to-back hurricanes are likely to come more often in parts of the U.S thanks to climate change.
Scientists at Princeton University calculated that the deadly storm one-two-punch that used to happen once every few decades could happen every two or three years as the world warms from the burning of coal, oil and natural gas, according to a study in Monday’s Nature Climate Change that was covered by the Associated Press in an article on Insurance Journal.
They looked at nine U.S. storm-prone areas and found an increase in storm hazards for seven of them since 1949, and then they looked at future a “worst-case scenario” of increasing carbon dioxide emissions and a more moderate scenario affected by current global efforts to reduce greenhouse gases.
Back-to-back storm frequency increased dramatically from current expectations in both scenarios based on storms getting wetter and stronger from climate change, along with sea levels rising, the AP story notes.
“For people in harm’s way this is very bad news,” University of Albany hurricane scientist Kristen Corbosiero, who wasn’t part of the study, said in an email to the AP. “We (scientists) have been warning about the increase in heavy rain and significant storm surges with landfalling TCs (tropical cyclones) in a warming climate and the results of this study show this is the case.”
Scientific American
Scientists are trying to pull carbon out of the ocean to combat climate change, a departure in thinking, as most efforts to date have focused on removing CO2 from the atmosphere.
An article in Scientific American this week looks at two such ongoing efforts that have turned to the oceans to try and sequester carbon dioxide rather than the air.
Alan Hatton, a professor of chemical engineering and a leader of a team from MIT team working on ocean carbon dioxide sequestration, explained to the publication that the cost of removing CO2 from the ocean is potentially much lower.
Oceans, the planet’s primary “carbon sink,” suck up to 40% of the greenhouse gasses from the atmosphere.
“In oceans, the capture step has already kind of been done for you,” he told Scientific American.
Additionally, because the density of greenhouse gas in the oceans is far greater than in the air, “the volumes of material that need to be handled in ocean capture are much smaller than in air capture operations, further simplifying the whole process,” he said.
Past columns:
- Poll: Almost Half the Nation Thinks Climate Change is Here and Now
- California Climate Bills Requiring Broad Disclosures Have National Implications
- U.S. EPA Seeking to Focus on Climate Mitigation
- Activists Say They’ll Continue to Call out Liberty Mutual for Fossil Fuels
- NASA: U.S. Coastlines Could Experience a Foot of Sea Level Rise Within 30 Years
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