Insurance to the Rescue?

6 June 2023

Insurance to the Rescue?

By Gwynne Dyer

California’s fall from grace has been steep and swift, and now even the insurance companies are pulling out. The two biggest American home insurance companies, State Farm and Allstate, announced last week that they will stop selling insurance policies to Californians. Why? Climate change-related wildfires are making it too risky to insure Californian houses.

California, the most populous US state (40 million people), is now entering the process that began in the United States in1992, when Hurricane Andrew devastated Miami and the big US insurance companies fled from Florida.

Most Floridians ended up with the Citizens Property Insurance Corporation, a state-backed insurer of last resort that only covers wind damage. However, that model is now teetering on the brink, because almost every year since 2017 has been a hurricane year for Florida.

It’s the same in South Africa, in India, in Japan, pretty much everywhere. As the scale and frequency of big climate-related events grows, the big insurers are bailing out of the most seriously affected regions.

That makes short-term sense in terms of avoiding big pay-outs, but they are gradually destroying their own customer base. When they pulled out of the Florida and California home insurance business to protect their balance sheets, they abandoned 62 million potential customers – almost one-fifth of the US population. That’s not a great long-term strategy.

The huge reinsurers (Munich Re, Swiss Re, Canada Re, Berkshire Hathaway, Lloyd’s, etc.), whose main role is to spread the risk ever more widely, minimising each insurance company’s individual exposure, are even unhappier with the present situation. So unhappy that they’d be willing to spend serious money to turn it around.

This is a market opportunity, for people who think in those terms. Most climate scientists don’t, but when they come up with some bright idea for lessening the impact of global heating, they’re bound to wonder who is going to pay for it. The answer may sometimes be the insurance industry. Here are two examples.

Stephen Salter is a Scottish engineer, emeritus professor at the University of Edinburgh, who has been working on Marine Cloud Brightening for many years. It’s a technique for thickening up low-lying clouds over the ocean so that they reflect more incoming sunlight. It’s intended to hold the global temperature down, but first of all it cools the ocean’s surface.

Thinking about how such an undertaking could be funded, it occurred to Salter that cooling the ocean’s surface in the right place would weaken or even prevent the formation of hurricanes.

Stephen Salter: “If you got a group of governments from, let’s say, the Gulf of Mexico who are worried about the damage from hurricanes…What you could say is that we will get the sea surface temperature down from 27°C to 24°C, and you pay us on how close we got to 24°C.

“We will have these things cruising around between Africa and the Gulf of Mexico and at the end of the hurricane season, you can decide how much of the fee we’ve actually earned. Now that would be a way that could look attractive either to governments or maybe to the insurance companies who are insuring against hurricane damage.”

GD: “So you would do the cooling on the African side of the Atlantic, where most of the hurricanes form, and even if they do form they will be far less powerful.”

SS: “Yes, and that looks to be the most commercially attractive route.”

Another example: John Moore is a glaciologist at the University of Lapland who has an idea for slowing down the speed at which glaciers are sliding into the ocean. The faster they flow, the quicker the sea level rises.

Warm sea-water melting the base of the glaciers is what’s speeding them up, so the solution might be to anchor flexible, buoyant plastic curtains to the seabed to steer the warm deep-water currents away from the glaciers’ mouths. Maybe start with an experiment on a Greenland glacier, but who would pay for that? Certainly not the Greenlanders.

John Moore: “There’s payments for preservation of old-growth forests, things like the Amazon rainforest that people recognise as a global good. So the ice sheet, we argue, should also be global goods that deserve to have a funding mechanism. One mechanism might be insurance.

“I’ve spoken to insurance companies, and they don’t know within a factor of a hundred what insurance premium level to set for Florida for hurricanes, because sea level rise adds remarkably to those risk estimates.

“If you could add a surcharge of something like $10 per year to an insurance premium in Florida, that could totally compensate the Greenlanders for becoming stewards of the ice sheet instead.”

Never trust the fossil fuel companies, but the insurance companies could turn out to be good guys.


To shorten to 700 words, omit paragraphs 3 and 6. (“Most Floridians…Florida”; and “The huge…around”)

Gwynne Dyer’s new book is ‘The Shortest History of War’.