I saw this interesting article today. State Farm is sending notice to 125,000 Floridian policyholders of their intent to cancel their house insurance in six months time. Why? Because State Farm couldn’t get a 47% rate increase approved by Florida regulators. Why the desire to increase rates that much? Because of events in the past and potential events in the future.
Three hurricanes in 2004 and 2005 caused $38 Billion in losses. As a result, State Farm hasn’t issued a new policy in the hurricane-prone area in over a year now. Climate change denialists would make for terrible insurance companies. The power of each potential future landfalling hurricane is expected to increase as a result of climate change. While the denialists certainly don’t care, insurance companies like State Farm obviously do. Their business model isn’t prepared to deal with more powerful hurricanes that strike Florida. This is interesting considering the past two years have been relatively quiet in terms of landfalling tropical systems in the Atlantic basin. As El Nino fades away, I would expect the next couple of years to look more like the 2005/2008 seasons.
This also comes on the heel of a decision in North Carolina not to insure properties on the Outer Banks for much the same reason. Increasing chances of more severe hurricanes means insurers can’t make a profit in the face of a riskier environment.
I expect to see more stories like this as time goes on and insurers are faced with crippling claims from millions of people affected by climate change effects, which are also forecasted to increase in number and severity. It would behoove State Farm and other insurance companies to lobby the Senate to get a climate bill passed as soon as possible. The sooner our greenhouse gas pollutants are reduced, the sooner our maximum climate forcing will happen, the sooner it will make sense to continue to insure people for their belongings and properties. How they approach legislation will go a long way in signaling how seriously they take this issue.