Climate events impact insurance everywhere
The frequency and severity of climate disasters have increased significantly in recent years, and insurance companies and home and property owners are footing the bill. The number of events that cause $1 billion or more in damage has reached an average of 20 per year, compared to 2–4 per year in the 1980s.
As insurance companies struggle to cover the rising costs, insured homeowners across the U.S. face the consequences—the national average for property coverage has doubled since the early 2000s. This has led many homeowners, particularly in high-risk states like Florida and California, to forgo insurance coverage due to the high costs. That means they’re on the hook for the full cost of a climate disaster directly affecting their property. In response, insurance companies have started to pull out of high-risk areas, causing potential issues for property owners and prompting differing state-level responses.
The increased premiums also affect renters—owners of commercial properties or, say, apartment buildings that face these additional costs often pass them onto tenants. The surge in climate events and corresponding insurance reactions underscore the broader societal implications of climate inaction.
The popularity of the Inflation Reduction Act
The Inflation Reduction Act (IRA), a signature climate law of President Biden, has seen significant utilization and investment since its enactment eight months ago. The law, which contains substantial incentives and investment to encourage the growth of renewable energy technologies, has spurred over $150 billion in clean energy projects, outpacing expectations by about 50%. Interestingly, the majority of these investments are happening in the South and Midwest—areas typically associated with declining industry—and in Republican districts despite none of them voting for the law.
However, the Act’s success has led to budgetary concerns due to the use of tax credits beyond expectations. Initial estimates suggested the IRA would cost about $400 billion over ten years, but updated figures from the budget office suggest it could cost 50% more, or around $600 billion. Republicans in the House, citing fiscal responsibility, are trying to roll back many parts of the law, leading to a potential risk for the IRA’s future. However, experts caution that the current surge of investment might stabilize in the coming years as demand for these technologies stabilizes, potentially curbing the projected costs.
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Sources
1. Scientific American, “Climate Change Is Destabilizing Insurance Industry,” https://www.scientificamerican.com/article/climate-change-is-destabilizing-insurance-industry/ Accessed May 11, 2023
2. Tampa Bay Times, “With Florida’s high property insurance rates, many are forced to ‘go bare’,” https://www.tampabay.com/news/florida-politics/2022/12/13/with-floridas-high-property-insurance-rates-many-are-forced-go-bare/ Accessed May 11, 2023
3. The Wall Street Journal, “Biden’s Green Subsidies Are Attracting Billions of Dollars to Red States,” https://www.wsj.com/articles/bidens-green-subsidies-are-attracting-billions-of-dollars-to-red-states-11674488426 Accessed May 11, 2023
4. The New York Times, “Companies Flock to Biden’s Climate Tax Breaks, Driving Up Cost,” https://www.nytimes.com/2023/05/03/business/ira-climate-tax-breaks-biden.html Accessed May 11, 2023
