Concern is rising over the harm increasingly extreme weather is having on property rates and availability.
The US Treasury Department is addressing rising concern over the impact of climate change on the availability and affordability of property insurance in disaster-prone areas.
The Treasury is now launching the first nationwide insurers’ financial exposure assessment to climate risk.
A preliminary email was issued by the Federal Insurance Office to regulators in every state. The email requested the data they had available for insurance coverage, liabilities and losses across the last half decade in every ZIP code. The federal office is seeking to analyze that data to understand whether insurers are declining to sell homeowners’ and business policies in areas at a high risk of the worsening storms and wildfires among other climate change impacts.
The Federal Insurance Office was first formed following the financial crisis of 2007-2008 for the purpose of monitoring coverage availability and risks to insurers. In May 2021, President Joe Biden issued an executive order on climate-related financial risks, directing the office to conduct an assessment for the “potential for major disruptions” of coverage availability in markets with greater climate change vulnerabilities. In August 2021, the office requested public comment on the ways in which climate change could harm insurance sector stability.
The office is seeking a better understanding of the impact of climate change risk on insurance coverage.
The email from the office said that it plans to conduct an analysis of climate change’s risk to insurers as they face the potential for larger numbers of claim payouts in high-risk disaster areas. By using each state’s data, the office plans to determine “the impact [of climate change] on protection gaps and insurance availability, particularly in at-risk markets,” said the email.
This strategy is being undertaken in response to widespread anecdotal evidence of property insurers withdrawing from markets at the highest climate risks. Florida and Louisiana, for example, have watched one insurer after the next stepping out of the market in response to massive hurricane-related losses in recent years. This has forced residents and businesses to scramble to find new insurance coverage in a far more limited and expensive marketplace.