As the climate crisis intensifies, the global insurance industry faces one of its biggest existential threats. Wildfires, hurricanes, floods, and other natural disasters are steadily on the rise in both frequency and severity, thus putting a strain on the insurance companies’ ability of predicting risks adequately. The recent destruction caused by wildfires in California, which may have cost between $10 billion and $30 billion in damages, has once again accentuated the need for the urgent resolution of these emerging climate challenges. The insurance companies now find it increasingly difficult to discern which areas have gone too risky for insurance and which are still viable.
If insurance becomes unaffordable, homeowners and businesses face a financial barrier. As rates continue to soar and coverage becomes limited, many people may find their homes or livelihoods endangered. Formerly thriving cities now suffer as insurance companies abandon them, leaving residents without the protection they once relied on. Some experts are predicting this will lead to an overall collapse of property values in high-risk areas, thus potentially triggering an economic disaster comparable to the financial crisis of 2008.
As the world grapples with these realities, governments will have a role to play in establishing a framework that would secure environmental protection while realizing that people living in high-risk areas should not be left in vulnerable positions. Long-term solutions will include the imposition of tougher environmental standards and the construction of systems that allow insurers to hedge against such risks. Still, the aggravating political tussles make such solutions very hard to realize, making it much tougher for future generations.