Fast Company

Climate Change Is Getting Expensive For The Insurance Industry

As natural disasters increase, insurance companies are paying out more and more. To keep costs down, the industry wants the government to be better prepared.

 

tornado damage in QueensNo, it's not your imagination; extreme weather events are becoming more common. It's hard to pinpoint climate change as the culprit on any single event, but it's increasingly difficult to ignore the increase in death and destruction caused by natural disasters. And if anyone knows about that, it's the insurance industry, which has to pay every time a new natural disaster hits.

On a call with members of the Union of Concerned Scientists last week, one insurance executive estimated that economic losses from natural disasters have climbed from an average of $25 billion each year during the 1980s to $130 billion annually this past decade. So what is the insurance industry doing to prepare for the future?

According to Nikhil da Victoria Lobo, senior client manager in the Global Partnerships team at Swiss Re, the industry is trying to help local governments prepare for extreme weather to mitigate damage--and insurance liability. "Insurance can put a price tag on climate risk, and help local governments more efficiently prepare for and finance what may happen," he said on the call. If governments know how much money they're going to have to spend on extreme weather, they might be willing to invest more now. And if they invest more at this point, then insurance companies won't have to shoulder as much of the burden when people are taken unawares.

There are a number of ways that cities can prepare for climate change--New York, for example, might need to work on flood-proofing the subway system, while Chicago needs to upgrade its aging sewage infrastructure. The problem, of course, is that local governments don't have much cash to spare at the moment, even if it is in the name of saving themselves from future disasters.

[Image: Flickr user Pro-Zak]

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  • Andrew Krause

    This has nothing to do with climate risk and everything to do with building higher value property in disaster prone areas. Take an average stretch of beach and there are billions of dollars in property in the path of the next hurricane where 20 years ago there may have been less than a quarter million - if any. The same is true with riverfront property in flood zones - I watched people contract for houses approaching a half-million in neighborhood build on a 100 year flood plain.