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Insurance Companies Lambasted for Their Climate Disaster Protection Racket

A look at Thursday's Senate Banking Committee hearing on property insurance and climate risks

A motorist drives through floodwaters on Lantau Island in Hong Kong. Credit: Peter Parks

Yesterday, as Greece, Turkey, Bulgaria, and Hong Kong suffered deadly, record-shattering flooding, Hurricane Lee exploded into a ferocious Category 5 storm in the Atlantic, the United Kingdom hit its most extreme September heatwave, and a broiling Texas declared a power emergency, the United States Senate Committee on Banking, Housing, and Urban Affairs held a hearing titledPerspectives on the Property Insurance Market and the Impact on Consumers.”

In his opening statement, Committee Chair Sherrod Brown (D-Ohio) called buying a home “essentially an act of optimism,” before detailing the stress of home ownership and the comfort insurance is supposed to provide. Insurers “have abandoned entire markets” as climate risk has grown everywhere, with floods, fires, and storms just this summer killing hundreds and causing billions of dollars in damage. “Now there’s no place to hide from these disasters.”

Brown noted this means state-backed “insurers of last resort” have grown rapidly; in Florida the insurer of last resort is now the largest in the state.

As Consumer Federation of America’s Doug Heller outlined in his testimony, home insurance is an essential product “akin to a utility.”

But climate pollution is quickly driving up the cost of insurance for many consumers, and the insurance company retreat from many markets is also making insurance less widely available. Since mortgage lenders require some form of property insurance, the shrinking availability of insurance is contributing to the already high cost of housing. Heller noted that this trend was especially sharp in Midwestern states that are sometimes mischaracterized as less vulnerable to climate disasters.

A storm-damaged gas station is reflected in a puddle after Hurricane Idalia crossed the state on August 30, 2023 in Perry, Florida. Credit: Sean Rayford

The industry has resisted calls for climate risk analysis for years.1

In his testimony, Heller rejected arguments that insurance market challenges are driven by consumer protection laws and legal environments. This was an argument deployed last December by Florida governor Ron DeSantis (R-Fla.), when he signed an industry-friendly reform that made it much harder to sue insurers by eliminating one-way attorney fees.2

The discussion cannot stop with insurance alone; reducing our collective exposure to the increased risks wrought by fossil-fueled climate change involve several aspects of public policy that deserve focus alongside, and in conjunction with, efforts to improve the state of the nation’s property insurance markets.

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Asked by a skeptical Sen. JD Vance (R-Ohio) about climate risk and California’s insurance market,3 Heller noted that California has one of the most profitable insurance markets in the nation, allowing companies to increase rates but not pass through reinsurance costs, while investing $2 billion to reduce wildfire risk.

Unsurprisingly, Sen. Elizabeth Warren (D-Mass.) focused on whether tools were available to regulators like the Federal Insurance Office (FIO) to better understand climate-related financial risk. Heller and non-profit retirement-home executive Michelle Norris told her that better data which private insurers are refusing to share is needed to measure the industry’s exposure.

Warren concluded by noting:

“The insurance companies are playing every part of the game. They’ve underwritten financing fossil fuels, and then they profit from selling protection from the impacts of those fossil fuels on climate. And now, when those climate risks are rising, they’re trying to hang American families out to dry here, demanding either higher premiums or getting out of the market altogether.”

Sen. John Kennedy (R-La.) impatiently walked each witness through a set of solutions, dismissing climate resilience measures as “government subsidies,” while embracing the suggestion of R Street’s Jerry Thibodeau, a former insurance executive, for repealing consumer protections and gutting tort reforms. Kennedy also stressed that, imperfect though it is, the National Flood Insurance Program needs to be reauthorized in a few weeks.

Sen. Chris Van Hollen (D-Md.) said that the true market failure is an improper cost of carbon pollution. Van Hollen said it isn’t the public that should foot the bill, touting his polluter pay model. Heller endorsed that concept, agreeing with Warren that insurance companies continue to underwrite fossil fuel projects with homeowners’ money:4

“They make the profit on climate change on the front end with their investments and then they downstream the costs of it to consumers with our premiums and reduced coverage.”

“We have to act in many, many ways to fix what’s here right now,” Norris added.

1 Treasury Secretary Janet Yellen highlighted these challenges recently when she noted a massive “protection gap,” wherein only 60% of 2020’s $165 billion in insured losses were covered by insurers.

3 Ignoring all of the fossil-fueled disasters of the past few decades, Vance falsely claimed that “the risk of climate change is in the future, not the past.”

4 Much like private equity, which as Nina Lakhani reports, invests both in the fossil-fuel industry and in climate-disaster-cleanup companies.

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