Hurricanes and insurances

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In my career as a meteorologist, for decades I didn’t enact an alarmist approach regarding the impact on our planet of climate change but damn, it’s hard not to be alarmis nowadays!

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- John Morales, 24th October 2024

Translated by Irene Cecchi

John Morale has been in charge of the meteorological news regarding Miami since 1991. On October 7th 2024, the calm and baritone voice that kept company to all South Florida’s families for over thirty years finally shook in front of the Milton hurricane. A broken sentence, wet eyes and a choked closure “I’m sorry, it’s just… horrible”.

The clip fastly reached two million views on X. During an interview with the New York Times, Morales revealed that, as the baby boomer he is, he decided to share it in order to underline that climate change is an intergenerational issue and not only a young people’s concern.

Calling it however you want, in less than two weeks time, the State that host the home of the presidential candidate who is still denying climate change suffered two hurricanes, Helene and Milton.

Even though the two of them were quite different and partially saved Florida, especially compared to the effects in North Carolina, along with the humanitarian tragedy they highlighted an issue dear to the electorate of both parties: the economic cost.

Under the evident disruption there is a long-standing and endemic issue for the United States: the majority of damages are not covered by insurance.

Hit and not insured

According to an AP News article, the first estimates suggest that Helene and Milton will probably add up to Katrina and Sandy in the list of “$50 billion killers” becoming the sixth and seventh in seven years only.

John Dickson, CEO and president of Aon Edge insurance company, estimates that only 5% of the victims had insurance for the damages. The worst effects of the hurricane took place in the hinterland, unprepared in front of a phenomenon that usually affects the coast.

On that occasion, he revealed: “Nowadays storms and meteorological events are very different from the past. The weather seems to be moving faster than us”

More frequent and intense phenomena threaten new areas following new itineraries. With more than 70 casualties, Asheville in North Carolina is one of the most affected villages, situated in a mountain area hundreds of miles away from the Atlantic coast, which suffered a lethal combination of rain, floods and landslides.

Also those States that are more familiar with this kind of events turned out to have some vulnerabilities. In Florida, anti-hurricane buildings and experienced alarm systems helped reduce the effects of the Milton hurricane. Anyways, some years ago the state entered a total insurance crisis related to the protection against natural disasters; a crisis that has been spreading all over the US.

More expensive and rare

Houses insurances are getting more and more expensive and rare

Big insurance companies occupy a minuscule share of Florida’s insurance market since regional and local ones offer premiums worth four times the national average. Since 2021, nine insurance companies have gone bankrupt in the Sunshine State, in the meantime, in 2022, the Ian hurricane has been the first one in Florida’s history to go beyond a hundred billion dollars damage, both insured and not.

In 2023, in the Western coast, the big insurance firm State Farm stopped signing property insurances in California, giving as main reason the risk of fires. The same company raised the rates on building by 30% in 2024, the year of the big fire that burnt down more than a million acres in the Golden State.

All over the US, in just a decade the cost of insured damages caused by natural disasters increased sixfold, going from $13 billion in 2013 to almost $80 billion in 2023.

Climate, but not alone

Even if it’s strong, the mere correlation between climate change and the insurance crisis does not entirely explain such a complex phenomenon.

Among the other causes, there are the rising cost of reparations and fixing –more than doubled between 2019 and 2022– and an exponential growth of reinsurance companies’ premiums, that is third party companies on which insurance companies rely to limit the risks. In addition, the whole sector is pointing at state systems that promote an excessive amount of compensation requests as the reason for the crisis, a “man-made” one, as the speaker of the Insurance Information Institute Mark Friedlander said.

Actually, according to a New York Times article, the US market for real estate insurance is becoming more and more distorted. Even though insurance premiums reflect the risks related to climate change, there are other factors that compromise the equation. For example, in those States like Oklahoma where regulators analyze less thoroughly all requests for higher insurance rates the result is that premiums are higher compared to other states.

That said, the increase of catastrophic natural events will end up deepening an already severe crisis.

No plan B

One of the consequences is the consolidation of options that were ideated to be the last resource or temporary one in Federal States.

This is what happened with the California FAIR Plan, established in 1968 to support people who couldn't afford private insurance, and that experienced a vertical increase of its contracts by 164% since 2019. Similarly, the Citizens Property Insurance’s policies, Florida’s insurance provider, almost doubled in 2023 covering a bigger market section than every other insurance provider in the Country.

In addition, more spread and strong phenomena may drain all resources coming from programs funded by federal states or directly by Washington.

For example, Helene and Milton may have led the National Flood Insurance Program to the edge. As today, the NFIP is in charge of more than two thirds of the whole flood insurance of the US but also has a $20 billion debt with the Treasury Department. According to Maxime Waters, the higher Dem deputy in charge in the House Financial Services Committee, “Just one more storm can lead the NFIP towards bankruptcy and prevent payments requests from devastated communities”.

It’s (also) the economy, stupid

It goes without saying, the main consequences of the insurance crisis falls back on the poorest population, the ones that are more exposed and vulnerable to the effects of climate change. But with more expensive and rare insurances, the amount of people that won't be able to afford them risks to grow exponentially, just like the number of non-insurable spots in the 50 States.

In June, the head of the Budget Committee, the Dem senator Sheldon Whitehouse, warned that the negative effects of the “climate chaos” on insurance prices may affect the whole economy and its stability in a way that “sinisterly reminds of the period before the 2008 subprime crisis”.

Maybe, using these terms it is easier for a homo œconomicus to empathize with the powerlessness feeling that comes out from John Morales’ clip.

The meteorologist used his shaken voice to put on the table the issue of climate change that today is still ignored and minimized. Once the climate crisis touches our wallets before our homes it’s our choice whether to reverse the course or keep on towards the eye of the hurricane.

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