Insurance talks heat up on global warming

Admittedly, there’s a lot more interest in the legal climate around insurance than the climate itself; but, that’s what some think the legal issues of the future will be about; so here’s a quick look at the current discussions.

After Hurricanes Dennis, Katrina, Rita, and Wilma, insurance companies are withdrawing from coastal markets in the United States. They fear the financially disastrous combination of severe weather trends with population growth in urban areas. One recent news report stated, “Some believe the two are creating a risk of losses so large that insurers could be pushed to the breaking point…”.

The industry has three primary methods of responding to “excessive” risk: by raising prices for what it sells; by withdrawing from product lines and markets; and by changing the financial, legal, organizational, and political practices of the industry. All three serve to protect the bottom line of insurers but may or may not serve a wider public interest.

Insurers often withdraw from a particular geographic or product market, either temporarily or permanently, when losses are too high. This leaves people and property without any recourse in a disaster except to draw on the public treasury. In coastal areas of the United States, state-backed insurance plans are being overwhelmed by new applications.

When one person loses their house and has no insurance, they must dig into their own personal resources to rebuild. But when thousands of people lose their houses in a disaster, then government must step in to provide the resources to rebuild entire communities. Insurers may raise their prices to recover from severe losses and rebuild their own reserves, but this will drive people away from purchasing insurance. Again, the gap in coverage may need to be filled by public spending. Continue reading “Insurance talks heat up on global warming”