Climate change is jacking up insurance costs. Freak hurricanes like Helene only make it worse

Hurricane Helene, the climate change-fueled tropical cyclone that pummeled much of the American southeast in late September, has claimed more than 230 lives with some estimates of damages ranging from $30 to 47.5 billion. But these statistics reflect a genuine human cost, such as that of a 27-year-old mother who died with her twin babies after a tree fell through the roof of their Thomson, Georgia home.

Among other things, Hurricane Helene has demonstrated that it is impossible to flee from climate change, as some of the impacted communities (like the city of Asheville) were believed to be safe from the impact of climate change. But it also has other implications for quality of life, including something many may not consider being linked to climate change: insurance rates.

Just ask Dr. Charles Nyce, a professor of risk management and insurance at Florida State University's College of Business. When listing the three major factors driving increases in property insurance rates all over the United States, he included exposure growth and inflation to a third one — climate change.

"As population has increased, so has the footprint of development," Nyce said. "This leads to increases in property exposed to natural disasters that we did not see in previous generations."

Given the cost to repair damaged property is already skyrocketing, the one-two punch of inflation and climate change drives higher insurance rates.

"We also see expanding areas of natural disasters," Nyce said. "This applies to wildfire, hurricane activity, tornadoes, severe convective storms, etc. The combination of these three factors is leading to higher insurance costs."

Additionally, Nyce said, the uncertainty of extreme weather events is priced into insurance products.

"Remember, insurance regulation wants to ensure that insurers remain solvent to pay for claims, this means to ensure solvency, they need more premiums and capital to ensure they have enough money to pay future losses," Nyce explained. The consequent higher prices, inevitably, fall hardest on those least able to bear the brunt.

"Less wealthy people will bear higher costs and they are the least able to afford the additional costs," Nyce said. This economic problem "will have a larger impact on the poorer people in the U.S., because they have less wealth to bear the additional costs. It will also have a larger impact on the elderly on fixed incomes."

Dr. Rebecca Elliott, an associate professor of sociology at the London School of Economics and Political Science, explained that the underlying problem with America's insurance system — one that is brought to the fore by climate change — is that, like so much else in the modern economy, it winds up being characterized by the nation's high levels of entrenched income inequality. Low-income Americans struggle to save and build wealth, meaning the cost burden imposed by these disasters and attempts to cover them through insurance will be uniquely difficult for them to bear.

"For the most part, insurance rates are indexed to risk — in other words, higher risk, higher premiums," Elliott told Salon. "So as the risks increase, which they evidently are due to the effects of climate change, those cost pressures will grow and grow — threatening the economic security of many Americans. There is a general crisis brewing around insurance affordability, for both private (i.e. homeowners' property and casualty, which underwrites wind and fire) and public (i.e. NFIP) insurance. Insurance is not doing its job if it's not within financial reach of the people who need it."

Want more health and science stories in your inbox? Subscribe to Salon's weekly newsletter Lab Notes.

This problem is not unsolvable. As Elliott pointed out, insurance companies often justify hiking up their premiums by pointing out that the National Flood Insurance Program (NFIP) is struggling to help private entities cover their losses due to the increased number and severity of recent floods. It is certainly true that, since Hurricane Katrina in 2005, the NFIP has been tens of billions of dollars in debt to the Department of the Treasury because it is not bringing in enough revenue to cover its losses. Yet Elliott says there is an alternative way to address this problem.

"Another way to increase premium revenue is to expand the risk pool," Elliott said. "Right now, only homeowners with mortgages, who live in official flood zones, are required to have a flood policy in place — and that requirement is very poorly enforced anyway. If you expand the purchase requirement, potentially even to all homeowners, then you have a lot more people paying into the program, many of them at relatively low risk and therefore at more affordable rates."

Elliott added, "In a world of risk-based insurance rating (public or private), the most important thing is to lower the underlying risk. If the risks come down, so do the prices. That means moving aggressively to mitigate the worst further impacts of climate change by cutting greenhouse gas emissions. It also means massive investments in infrastructure and rebuilding strategies that keep people safer as we feel the impacts we can no longer avoid. This is a problem that cannot be left at the doorsteps of individual homeowners. It's too big."

Indeed, Elliott suspects that the figurative doorsteps of individual homeowners are already being bombarded with these insurance-related problems. Americans impacted by Hurricane Helene, for example, may receive an upsetting surprise when they try to receive compensation for their losses.

"Undoubtedly most of the people affected by Helene will not have a flood policy in place," Elliott said. "Many, many people will be surprised by that fact — they will assume their 'all-peril' homeowners policy covers flooding. It does not. So as they are mucking out and cleaning up, they will learn that they have essentially no resources to rebuild beyond their own savings, or what little eventually trickles down in the form of disaster relief. This is on average a few thousand dollars per claimant. This is another reason to expand the mandatory purchase requirement. No one is really 'safe' from flooding."

Nyce observed that because insurance plays a vital role in our economy as a risk financing tool, reformers need to view it as "only one piece of the climate change puzzle."

"We need a solid public private partnership that involves not only insurance, but mortgage lenders, builders, local, state and federal officials to develop a more comprehensive plan to manage natural disaster risk," Nyce said. "Our current system has many cracks that allow too much risk to ultimately fall to the homeowner."

Although homeowners should also bear the risks involved with their location decisions, it is more difficult for them to stay well-informed because of climate change, bringing the problem full circle.

"With risk levels always changing, and location decisions being long term decisions (houses are built to last a long time) the frictions that occur are causing the continued growth of natural disaster risk," Nyce said. "Piecemeal solutions will likely fail."