The main purpose of this ongoing blog will be to track planetary extreme, or record temperatures related to climate change. Any reports I see of ETs will be listed below the main topic of the day. I’ll refer to extreme or record temperatures as ETs (not extraterrestrials).😉
Main Topic: Stress on Insurance Because of the Climate Crisis
Dear Diary. As my readers know, more flooding, wildfires, drought in association with record heat, and stronger coastal storms are all part of the climate crisis. If you own a home or other property, you will want to insure it. Climate change factors that I mentioned are staring to jack up insurance rates. Soon, rates will be unbearable for most homeowners in the U.S. living on or near the Gulf Coast and the Atlantic Coast. But just how much financial pain is coming?
Here is an article from Climate & Capitol Media that begins to answer that question:
Insurance gap could put significant stress on US economy, experts warn – Climate and Capital Media
Insurance gap could put significant stress on US economy, experts warn
by Moriah Costa | Jul 23, 2024
An insurance gap of $28.7bn exists between what Americans are paying for coverage and what they should be paying given current climate change risks, economists and scientists said during a recent press briefing.
“Beyond even future [climate] change, you’ve got some big gaps in terms of what people are paying for protection against catastrophe risk versus what they should be [paying] in a resilient insurance world,” said Dave Burt, founder and CEO of investment research firm Delta Terra Capital.
While the risk of flooding and wildfires has gradually risen, insurance prices have remained relatively constant. Only in the last couple of years have insurers started to raise prices or even completely exit markets, leading to some homeowners going without insurance coverage.
Insurance risks are only likely to get worse in the coming years. Flooding alone is likely to increase dramatically, as rising sea levels “will change coastlines rather permanently” by up to two meters or more by the end of the century, said John Englander, an oceanographer and president and co-founder of the Rising Seas Institute.
While many effects of climate change are being dealt with on land, the heat being stored in the world’s oceans is responsible for the increase in extreme weather events, Englander said.
There is the potential for $1.2 trillion in losses
“The heat that’s being stored in the ocean is driving the weather changes, driving the extra rainfall, driving the wildfires to increase, and driving the melting glaciers on Greenland and Antarctica,” he said.
According to Burt, there is the potential for $1.2 trillion in losses in the single-family home market if insurance premiums are priced as they should be and allowances made for future climate losses.
While the amount would not be on par with a global financial crisis, he said, it would have a huge impact on communities prone to increased natural disasters, potentially impacting 20% of the real estate industry.
And it may already be happening.
During the pandemic, there was an increase in home sales which has started to fade, while homes considered at risk of climate change impacts have had an increase in listings.
“You’ve really just recently reached a point where these markets are at a level of supply that you can probably look forward to home price depreciation [in] these markets, beginning in 2025 or so,” Burt said.
Susan Crawford, a professor at Harvard Law School, said that while changes need to be made on the political level to mitigate this insurance gap, it is going to be difficult to adapt as 40% of America’s GDP comes from the coasts.
When a sudden repricing on insurance happens because of climate risks, many housing areas are unlikely to recover
“Every part of our financial and legal system at this point is devoted, singularly devoted, to keeping the status quo in place,” she said.
When a sudden repricing on insurance happens because of increased climate risks, many housing areas are unlikely to recover as they did after the 2008 financial crisis. While government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac guarantee around 60% of mortgage debt in the US, neither take climate risk into account.
“They’re not going to bounce back once this happens; those houses are off the market, and we know that these housing issues can lead to real convulsions in our entire financial system,” she said.
While many seem to think it’s up to the insurance industry to price this systemic risk, Crawford argues that it’s up to the Federal Reserve and other federal regulators to help mitigate the risk.
But banking regulators are “not well coordinated, and none of them require climate risks disclosures the way the European Central Bank does, or capital requirements based on climate risks”.
While the Federal Housing Finance Agency does have the legal authority to require GSEs to account for climate risk, making it more expensive to buy a home will be politically difficult, as home ownership is part of the American dream.
Crawford said the U.S. needs to do more on both the federal and local levels to account for risk, such as adopting a national adaptation plan, requiring climate risk scenarios, ensuring adequate capital requirements, and encouraging people to move to safer places through incentives and subsidies.
“We are capable of doing this, but it would require genuinely admitting that we face dramatic climate risk as a country… Lots of people don’t understand the risks to which they’re exposed, including in America.”
Written by Moriah Costa
Moriah Costa is an award-winning freelance journalist and editor who covers personal finance, investing, culture, and environmental issues. Her work has been published in Thomson Reuters, Money, The Guardian, and others. She previously worked as a banking reporter at S&P Global. Originally from Arizona, she’s lived in London, Madrid, and D.C. She currently calls Paris home.
Here are more “ETs” recorded from around the planet the last couple of days, their consequences, and some extreme temperature outlooks, as well as any extreme precipitation reports:
Here is more new July 2024 climatology (More can be found on each prior daily post during August):
Here is More Climate News from Tuesday:
(As usual, this will be a fluid post in which more information gets added during the day as it crosses my radar, crediting all who have put it on-line. Items will be archived on this site for posterity. In most instances click on the pictures of each tweet to see each article. The most noteworthy items will be listed first.)