How “cat Cats” Are Ruining the Home Insurance Industry - Latest Global News

How “cat Cats” Are Ruining the Home Insurance Industry

This story was originally published by Ground material. Sign up for Grist’s Weekly newsletter here.

The rising cost of home insurance is one of the most noticeable symptoms of climate change in the United States today. Major airlines like State Farm and Allstate have done this withdrew from offering fire insurance in CaliforniaThousands of homeowners have been struck off their books and dozens of small insurance companies have collapsed or fled Florida And Louisiana after the recent major hurricanes.

The problem is quickly becoming a crisis that extends far beyond the country’s coastal states. That’s because of a different, less discussed type of disaster that has wreaked havoc in states across the Midwest and Great Plains, causing billions of dollars in damages. In response, Insurers have raised premiums higher than ever before and even landlocked states like Iowa lost customers.

These so-called “strong convective storms” are large and powerful thunderstorms that form and disappear within a few hours or days, often producing hailstorms and tornadoes as they shoot across the flat expanses of the central United States. The insurance industry refers to these storms as “secondary hazards” – the other term is “Kitten cats“, a reference to them being smaller than large natural disasters or “nat cats.”

But the damage from these secondary threats has begun to add up. Damage from severe convective storms increased by around 9 percent every year between 1989 and 2022, according to insurance company Aon. Last year caused these storms A total of more than $50 billion in insured losses– about as much as The massive Hurricane Ian in 2022. No single storm event caused more than a few billion dollars in damage, but together they were more expensive than most major disasters. The extent of the damage caused the insurance industry to reel.

“As insurers, our job is to predict risk,” said Matt Junge, who oversees property insurance in the U.S. for global insurance giant Swiss Re. “What we missed is that it wasn’t one big event with a big impact, but rather a series of small surprise events that just added up. There’s this kind of reset where we say, ‘Okay, we really need to get a handle on this.'”

One reason for this steady accumulation is that more and more people are moving to areas prone to convective storms, increasing the damage profile of each new tornado or hailstorm. The cost of rebuilding a home has increased due to inflation and supply chain bottlenecks, driving up prices. But climate change could also play a role: convective storms arise primarily in hot, humid and unstable weather conditions.

“We have so few observations of hailstorms and tornadoes, so trend analysis is difficult,” said Kelly Mahoney, a scientist at the National Oceanic and Atmospheric Administration who studies severe convective storms. “But you take storms fueled by heat and humidity and watch them develop in a world that is hotter and wetter than ever. It’s a trite analogy these days, but it still applies here: loaded dice or a stacked deck.”

Climate attribution is much more difficult for these short-lived storms than for hurricanes and heat waves, Mahoney said, but it is clear that climate change will have some influence on how and where they develop. Warming has already increased the geographic range of “Tornado Alley.” extends further south and east than beforebringing even more twisters to states like Alabama and Mississippi.

Whatever the cause, this loss trend is making the business of many insurance companies significantly more difficult. The most vulnerable are small regional insurers with large customer groups in a state or metropolitan area. When a severe storm hits, these companies must settle large portions of their risk pool, which can deplete their reserves and drive them into bankruptcy.

“The local mutuals are having a few storms, they’re having a bad year and they’re in trouble because all their business is here and the risk isn’t spread,” said Glen Mulready, Oklahoma’s insurance commissioner. The state has some of the highest insurance premiums in the country, and Mulready said many insurers are now refusing to write new policies on homes with old roofs that could collapse in tornadoes and hailstorms.

continue reading: As climate risks increase, the insurance safety net is collapsing

Even large “reinsurers” that sell insurance to insurance companies around the world are feeling the impact of these storms. Global reinsurance companies like Swiss Re collect premium income from around the world and insure against earthquakes in Japan and hurricanes in Florida, so they are not exposed to the risk of collapse in local disasters, including major ones. But the increasing trend of “attrition losses” from repeated convective storms threatens to reduce their profit margins.

“We are less worried about the consequences of such events,” Swiss Re’s Junge said, using the industry term for the costliest disasters. “The only concern for us is the impact on yields.”

Ed Bolt, the mayor of Shawnee, Oklahoma, has seen these impacts firsthand. A tornado raged on his city’s main boulevard last year and destroyed more than 2,000 buildings and ripped off the roof of Bolt’s own home. His insurance company paid to have the roof replaced, but sent him a letter a few months ago saying his annual premium would rise 50 percent to about $3,600 a year.

“Costs used to keep going up, but last year we knew we were going to suffer a lot of damage because of the tornado,” Bolt told Grist. “I’m sure it would be a pretty consistent experience across the city.”

Most states require insurers to seek approval from regulators before raising rates, presenting governments with a difficult dilemma. If they raise rates, homeowners will find it harder to make their insurance payments and also risk property values ​​declining. If they keep interest rates low, insurers could respond by stopping writing new policies or pulling out of the state. Mulready, the Oklahoma commissioner, says a national insurer exited his market earlier this year.

Still, the Midwest has yet to experience a large-scale exodus, and industry officials say it’s unlikely they will pull out of the region like they did in California. What is certain, however, is that insurers will continue to raise premiums as high as states allow. Insurers may also increase deductibles and set a higher minimum claim amount before the insurance takes effect. The result is a greater financial burden for homeowners in fast-growing metropolitan areas like Denver, where insurers’ storm threats have skyrocketed in recent years.

Perhaps the worst part of the problem is that most states have made little progress in preparing for these storm events. Florida imposed strict building regulations after Hurricane Andrew in 1992 and most newer homes in the state can withstand strong winds. The housing stock in the central United States is far less resilient to tornado winds and hail, and few cities have forced builders to fortify homes against these hazards.

Erin Collins, the top policy advocate for the National Association of Mutual Insurance Companies, the nation’s largest consumer trade group, said insurance carriers may need to continue raising interest rates until the nation’s housing stock is more resilient to severe storms.

“Lowering this loss curve will require community-wide hardening,” she told Grist.

continue reading: Extreme weather events have cost $80 billion this year. The true price is far higher.

This won’t be easy. Insurers must convince major homebuilders that they should build with more expensive, storm-resistant materials, and they must also persuade millions of people in existing homes to upgrade their roofs and windows, which can cost tens of thousands of dollars. Because severe convective storms can affect such a wide region, it will take a long time for these mitigation measures to “push the loss curve down.”

“The good news is that we know how to build storm-proof homes, and there is evidence that building better makes a big difference,” says Ian Giacomelli, senior meteorologist at the Insurance Institute for Business and Home Safety, a nonprofit organization, which advocates for stronger building standards.

Giacomelli points to the town of Moore, Oklahoma introduced some of the most stringent storm resistance standards in the country after it suffered three devastating tornadoes in two decades. Almost all of the city’s housing stock now has roofs that can rebound from large hailstorms and strong bonds that prevent roofs from blowing off during tornado events. Giacomelli says the country’s current insurance crisis would likely ease if more cities followed Moore’s lead.

“I think the solutions are coming into focus,” he told Grist. “It’s more about whether we can muster the will to do it.”

This article originally appeared in Ground material at https://grist.org/extreme-weather/home-insurance-midwest-climate-disasters/. Grist is a nonprofit, independent media organization dedicated to telling stories about climate solutions and a just future. Find out more at Grist.org

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