In recent months, the dynamic character of voices arguing that the insurance industry cannot meet the challenges posed by climate change has shifted from mezzo piano to mezzo forte. Approval of In response to Rep. Adam Schiff’s (D-Calif.) proposal to create a federal reinsurance program, Consumer Watchdog founder Harvey Rosenfield declared, “It’s becoming increasingly clear that the insurance industry is neither willing nor able to meet consumer needs…that’s why government intervention is necessary.” Former California Insurance Commissioner Dave Jones said: “We are steadily Insurance is not valid It will affect the future not just of California, but of the entire United States.” Anti-fossil fuel group “Insure our Future” Maintain Insurance companies are contributing to climate change. Insure our Future is supported by the Connecticut Citizens Action Group, whose mission is to statement “To actively engage Connecticut residents in changing power relations to achieve environmental, economic and social justice.”
The “uninsurable future” camp is primarily on the left, but it doesn’t have to be. the study Even after taking into account the increasing impacts of man-made conditions, it is clear that natural disasters, especially floods, are increasing in severity. Hurricanes, hailstorms, tornadoes, and floods know no partisanship. As these disasters intensify, they will destroy Republican homes with the same ferocity that strikes Democrat homes.
Any analysis to determine whether the future is uninsurable assumes we know what the future holds. We don’t. But we have data to support the assertion that whatever the future brings, it will not pose an existential threat to the insurance industry.
Insurance and alternative capital
Property and The property and casualty insurance industry had $2.7 trillion in assets at the end of 2023. The industry lost $627 billion that year. In addition to primary insurance capital, the reinsurance industry has another $670 billion in capital, of which $108 billion is “alternative” capital, primarily in the form of insurance-related securities such as catastrophe bonds. It is noteworthy that the amount of alternative capital backing insurance has almost doubled compared to 10 years ago. This means that third-party investors and asset managers seeking diversification of investment holdings that are not correlated with capital market volatility are increasingly embracing insurance risk, moving towards insurance risk rather than away from it. And importantly, while 10 years ago liability and cyber risks were considered unsuitable for ILS products because there were no models on which to base pricing, today catastrophe bonds are being incorporated into insurance products. Bonds All kinds of risks that were once considered uninsurable are now being insured: liability risk, cyber risk, nuclear risk, wildfire risk. Indeed, as insurers get more data to inform loss projections, they are insuring risks that were once considered “uninsurable.” Just a few decades ago, insurers would steer clear of earthquake risk because it was considered an unpredictable “act of God.” Today, earthquake insurance, reinsurance, and ILS products are actively underwriting earthquake risk.
Historically, when insurers have been hit by unexpected catastrophes, such as the massive liability crisis of the 1980s, the 9/11 terrorist attacks, or the $81 billion (inflation-adjusted) losses from hurricanes in 2005 (the year of Hurricanes Katrina, Rita, and Wilma (KRW)), the insurance market was only temporarily disrupted and insurers responded creatively. In the 1980s, new third-party capital supported the creation of liability insurers. In the wake of 9/11 and KRW, new reinsurers with clean balance sheets were created. These responses to insurer shocks show that insurers have been resilient in the face of adversity. Resilience means being able to bounce back. That’s the job of insurers, the financial first responders. That’s what they do.
I’m not here to help you because I’m from the government.
The unfounded assertion that the insurance industry is incapable of insuring against risks exacerbated by climate change could serve as a springboard for efforts to create a federal insurance and reinsurance agency, such as that proposed in Rep. Schiff’s INSURE Act, which seeks to create a federal catastrophe reinsurance agency backed by a $5.4 trillion reserve. Sheet The federal government has already mismanaged two insurance programs: federal flood insurance and crop insurance. Instead of putting the burden on taxpayers to socialize risk, the ILS market could attract as few as five states. 10% of the $35 trillion in retirement assets would add uncorrelated risk to investment portfolios, adding an additional $1.8 trillion to P&C balance sheets. Private markets can meet this challenge. The federal government shouldn’t get in the way.
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