The U.S. Climate Politics Almanac: Updates on the Fossil-Fueled Insurance Meltdown

Last year, Hill Heat summarized numerous state legislative responses to the fossil fueled meltdown occurring in insurance markets. The insurance crisis has continued to escalate in 2024, and regulators, media outlets, and voters have taken notice.

I recently worked with Climate Cabinet to publish an overview of climate risk and state insurance policy, which summarized key terms and trends, including policy recommendations made last year by the Federal Insurance Office. This post will highlight some of those developments, while reviewing a few pieces of writing I’ve published on the subject lately.

Federal developments

Since insurance is mostly regulated at the state level, the most pressing intervention available to President Joe Biden at the moment is to fill the insurance expert vacancy on the Financial Stability Oversight Council (FSOC). The regulators who sit on the FSOC must consider the ways that large insurers fit within their new framework for designating non-banks as systemically important.

Republicans seem to be hoping the public doesn’t notice their politically toxic approach to the insurance crisis: helping the insurance industry conceal their strategy for maximizing profits while socializing losses. A few weeks ago, the House Financial Services Committee advanced several pieces of legislation to block or overturn various elements of the FSOC member agencies’ climate-related rules, including a bill that would eliminate subpoena power held by the Federal Insurance Office (FIO) and Office of Financial Research (OFR) to collect data from the insurance industry. The FIO and OFR have never used that subpoena power, though there is a growing likelihood that they might to get a handle on insurance market disruptions. A climate-related “data call” that was approved by the FIO seems to have been watered down by the National Association of Insurance Commissioners (NAIC).

There are also two federal programs that are badly in need of modernization to adapt to the climate crisis. One is the National Flood Insurance Program (NFIP), which has struggled from more than a decade of short-term reauthorizations. The Biden administration is currently threatening to withdraw flood insurance discounts it provides to Lee County, Florida after the county seemingly allowed hundreds of homeowners to rebuild homes devastated by Hurricane Ian without making required upgrades. (The federal government has also put forward billions to assist communities with such climate resilient investments, though whether Florida politicians will make it easy to take advantage of those resources is an open question.)

Farming giants hit by rising climate disasters are getting much higher payouts from the Federal Crop Insurance Program (FCIP)—an issue of stated concern for both of 2024’s most vulnerable Senate Democrats, Sherrod Brown of Ohio and Jon Tester of Montana. Brown has introduced legislation to make the FCIP more resilient to climate change, but it seems unlikely that Republicans will agree to include it in the upcoming farm bill. (“There’s no need to fiddle with something that’s not broken,” Sen. Chuck Grassley (R-Iowa) told the New York Times.)

A diverse set of insurance scholars, including Rebecca Elliott, the author of an excellent book about the NFIP, just concluded a blog series for the Climate and Community Project (CCP) called “Policy Visions for the Home Insurance Crisis.” My contribution to that series laid out how insurance market disruption is threatening financial stability. But it also called out how urgent priorities like disaster relief and NFIP modernization are subject to hostage-taking and brinksmanship in a dysfunctional Congress. Worthwhile legislation to modernize the NFIP has been introduced, but doesn’t seem likely to go anywhere soon. Seemingly tired of waiting for Congress to fix the broken disaster relief system, state governments from Hawaii to Massachusetts are experimenting with ways to shield their constituents from climate chaos.

Notes from the coastal crisis

Florida

My state policy overview described Florida governor Ron DeSantis’s 2022 insurance overhaul in depth. That law is the most well-known policy intervention that has passed to date, justified by the “price signal theory,” which claims that higher insurance prices will force a rational set of choices about where people can and should live in the future. But as Paula Jarzabowski wrote in the CCP series, the “price signal theory” is based on numerous faulty premises.

Perhaps unsurprisingly then, DeSantis’s overhaul has made Florida’s insurance market more expensive but not necessarily healthier. When the Florida legislature considered instituting the most modest of consumer protections during the 2024 session, the insurance lobby helped kill the bill. Insurance lobbyists argued that the 2022 changes needed more time to work their magic—by enticing more private insurers into the market, the reforms were meant to reduce reliance on the state insurer of last resort, Citizens Property Insurance.

But the results are in: the 2022 overhaul has neither depopulated Citizens nor halted the exodus of insurers from Florida. There have been some new entrants into the market, but they are notably flimsy, and have enjoyed “grade inflation” from a ratings agency called Demotech, whose practices uncomfortably resemble those of credit rating agencies in the run-up to the 2008 crash.

There is now some evidence that the Florida GOP should be nervous about their ineffective and unpopular actions. In February, the Florida House Insurance and Banking Subcommittee held a hearing on a bipartisan bill that would establish a public option for insurance— an about-face from the attempted policy of depopulating Citizens. That said, the hearing on that bill was merely informational, and by the conclusion of the 2024 legislative session, Florida lawmakers were only able to agree on a slight expansion of their 2022 reforms and a minor set of tax breaks, an intervention on insurance policy that corporate-accountability reporter Jason Garcia characterized as “$50 and pray.”

Louisiana

Louisiana legislators considered emulating DeSantis’s plan last year, but opted instead to make more minor changes, including the creation of a $30 million roof fortification program. But at the start of 2024, GOP extremist Jeff Landry succeeded a Democrat as governor and the far-right Tim Temple took over as Louisiana’s insurance commissioner. This session, Louisiana lawmakers instituted reforms that looked much more like DeSantis’s, including the weakening of consumer protections put in place after Hurricane Katrina. Meanwhile, Landry proposed cutting funding for the roof fortification program all the way down to $5. Funding was indeed slashed, though not quite that dramatically.

California

As we wrote last September, California lawmakers nearly moved in a similar direction to Florida as well. It remains unclear if there will be a 2024 follow-up, though Sen. Bill Dodd (D-Napa) has expressed interest in one, and governor Gavin Newsom has backed a bill to expedite insurers’ rate increase requests. Insurance Commissioner Ricardo Lara has proposed a ‘Sustainable Insurance Strategy,’ which consumer groups have weighed in on, calling for transparency in any changes that are made to catastrophe models. At a recent hearing, Lara urged Newsom and state legislators to be patient and allow for his reforms to be finalized.

Under Lara’s proposal, insurers are supposed to expand their coverage in exchange for revisions long sought by industry, but it’s not clear that consumer protections are going to be sufficient. For example, California’s legally mandated discounts meant to encourage homeowners to pursue climate-resilient upgrades are reportedly not very generous, and Lara just allowed State Farm to reduce its discount rate for wildfire mitigation.

In February, Lara teamed with insurance regulators in Oregon and Washington to detail the “hidden cost in delaying climate action,” and quantify insurers’ risky investments in fossil fuel assets. Consumer Watchdog followed this report with a call for Lara to mandate disclosure of insurers’ investments in fossil fuel projects.

North Carolina

As part of our 2024 election previews, we wrote that North Carolina’s insurance commissioner election would be an interesting race to watch. Indeed, that election between Republican incumbent Mike Causey and Democratic state senator Natasha Marcus is shaping up to be a test of how a contradictory set of state policies are playing out in a very competitive political contest.

As I wrote in The American Prospect: 

It’s not just the coasts: An update on inland insurance meltdowns

My Prospect piece also touched on how this crisis is playing out nationally:

Additional examples include Colorado, where legislators adopted insurance reforms last year, and Iowa, which ranks first in FCIP participation. And as the Santa Fe New Mexican recently editorialized, climate disasters are disrupting insurance markets in New Mexico, which already has the nation’s highest rate of uninsured homes.

Despite this data, most media attention on this subject thus far has focused on big stories out of California and Florida. But last week, the New York Times’ Chris Flavelle and Mira Rojansakul published a detailed analysis of insurance market data nationwide, which confirmed that many Midwestern states are experiencing acute challenges. With a rapid increase in intense storms, the insurance market has turned unprofitable in states including Iowa, Minnesota, Nebraska, and South Dakota.

Welcome though the Times story was, it framed insurance companies as the victims of climate change without mentioning climate pollution, thus exemplifying a common problem with mainstream media reporting on this topic.

This framing ignores how insurance companies have had decades to prepare for the ways that climate change threatens their business, yet have continued to underwrite and invest in fossil-fuel companies and infrastructure. By failing to consider the whole scope of insurance companies’ business, including investment income, too much reporting overlooks how insurance companies are enjoying huge profits and generous distribution to shareholders even amidst a slew of consumer horrors.

And there isn’t enough attention devoted to the ways that insurers are blocking basic data collection about climate risks, let alone stronger regulations. In that, insurers are often helped by the National Association of Insurance Commissioners (NAIC). As I detailed in a report with the Revolving Door Project, the NAIC is nominally a standards-setting consortium of regulators, but functions more like a trade association, and appears to be a barrier to effective climate risk management.

Learning valuable long-term lessons

Speaking on the Times podcast The Daily¹ , Flavelle expressed his view that we are seeing the “end of insurance as we know it,” and predicted major policy shifts. Painful though they are, insurance market disruptions are driving home the already high costs from decades of inaction to curb climate pollution. Or, as Flavelle put it:

This echoed my central argument in the Prospect. Because it is offering a glimpse of what an unmanaged transition to a warmer world looks like, the insurance crisis presents a critical opportunity for Democrats to learn the political and policy lessons necessary to navigate the Anthropocene. 

For someone whose political career was largely defined by the damaging legacy of neoliberalism, President Biden has often shown a refreshing ability to learn important economic lessons from our recent past and apply them to our overlapping set of crises. Insurance—a key factor keeping inflation elevated as Biden runs for re-election—offers another opportunity to learn lessons that will be relevant for years to come.

Because insurance is an issue of growing political salience in states currently shaded red, blue, and purple on the 2024 map, it will be vital for Biden and his fellow Democrats to get a handle on the crisis. Republicans appear committed to the “lifeboat ethics” solution of enabling insurers to privatize profits and socialize losses, while pretending that climate polluters aren’t responsible. Democrats must figure out how to present a stark contrast that reflects the reality that we are all in this together.

1  The podcast was sponsored by Capital One, a bank that “has served the energy industry with experienced oil and gas lenders, on-staff petroleum engineers, marine lenders, derivatives hedging specialists and corporate finance and Treasury Management specialists” for “more than 30 years,” with “more than $3.5 billion in loan commitments” for “more than 90 exploration and production, midstream, and other energy companies.” As in the article, Flavelle failed during the podcast to mention that climate change is caused by greenhouse pollution.