December 2024
It was fifty years ago that the insurance industry sounded an early warning on climate change. Nobody listened. Today, their data on future events is sounding another alarm. Let’s hope we listen.
Insurance companies use data to assess and price risk. This began in 1691 with Lloyd’s of London in a coffee house frequented by sailors, merchants and shipowners. Lloyd’s catered to the clientele by providing reliable commercial shipping news used by those brokering trade deals including buying and selling ships, and marine insurance. Homeowners insurance began years earlier (1666) after the Great Fire of London. By the late 1800s, Lloyd’s of London was in North America offering protection from the risk of fires.
It was in 1973 that Munich RE, an underwriter of insurance policies, raised an alarm about climate change. As underwriters, their job is to evaluate and financially cover the risk of insurance policies. They noted that claims coming in for flood damage were regularly rising more quickly than predications from their actuarial risk tables. This is when they warned that systemic change was underway. Twenty years ago, this data showed the dominant threat of loss and damage was still coming from water. Today, this data shows wind as the primary threat.
Regardless of where damage comes from, catastrophic events are becoming more frequent and losses are greater. Thus far, Ontario residents have been fortunate compared to those on the east and west coasts. With winds increasing, Ontario residents are unlikely to be so fortunate in the future.
Increasingly, households struggling to make ends meet are choosing to reduce or eliminate insurance coverage. With their focus on price, they are less concerned about reductions in coverage. This high-risk gamble leaves many underinsured and more choosing to be uninsured. Once cancelled, it becomes more difficult and expensive to obtain insurance. Some choose to drive an uninsured vehicle or purchase only the most basic insurance required to meet mortgage requirements. Those on floodplains or near undeveloped areas prone to drought and fire are unable to obtain insurance.
This all relates to changes in the weather. California implemented price caps on home insurance similar to Alberta. Two of the state’s biggest insurers stopped issuing policies.
We have been warned of what is to come. Now it is up to us.