The News
The US southeast has become an epicenter of the climate crisis, after two back-to-back hurricanes, Helene and Milton, wrought devastation across six states.
The scope of Milton’s damage remains uncertain, as does the total cost — both to local residents and businesses, but also to insurers. Credit agency Morningstar estimated that the insurance losses from Milton may be between $30 and $60 billion, while some estimates run to $150 billion, Sherwood reported.
The damage will likely “make a dent” in many insurers’ profitability, analysts told the Financial Times, particularly in North Carolina, which isn’t typically affected by such extreme weather events. Some private insurers stopped covering climate vulnerable areas years ago because the likelihood of having to pay out was no longer worth the risk. If more leave, or up premiums, then residents will find themselves with few or no options even as their risk rises due to climate change.
SIGNALS
US government may face an ‘insurance reckoning’
The federal National Flood Insurance Program, which covers millions of the most vulnerable Americans, is running out of money, Politico reported. It is also patchy, with many areas affected by Hurricane Helene not covered. Congress has long-debated revamping the program, but now it faces an “insurance reckoning.” “The way that we prepare for disasters and the way we recover from them just needs to be fundamentally changed,” a Republican congressman told the outlet. Meanwhile, House Speaker Mike Johnson has ruled out a vote on additional disaster relief funds before the election. One potential solution to these shortfalls is “disaster recovery bonds,” the Financial Times wrote, providing a federal subsidy for disaster relief that could be issued as needed at the local level.
Green power transition may be particularly vulnerable to loss
The renewable sector is lacking in strategies to remain “resilient and solvent” in the face of extreme weather events, Semafor’s Tim McDonnell reported. Insurers consider renewables riskier than fossil fuels, while renewables projects rarely factor insurance early enough in planning to minimize risk. Natural disasters are becoming the sector’s top reason for claims, according to an industry report, and as the sector grows, so will insured losses, McDonnell points out. Renewable insurers will need to account for real risk while not being forced out of vulnerable markets, as has the real estate sector, with financial vehicles like catastrophe bonds — although investors are currently waiting to see how much they might be called on to pay out in Milton and Helene’s wake, which could hurt the market long-term.
As costs mount, ‘managed retreat’ may become more attractive
As extreme weather events become more common and the accompanying cost rises, a “managed retreat” — where people and services are physically relocated from vulnerable areas — may become increasingly attractive, some analysts argue. Such a strategy faces significant challenges — notably, residents’ resistance — but with adequate funding and community-driven planning, it is viable, a National Academies of Science study found. The Atlanta Federal Reserve chief recently warned the US economy may feel the hurricanes’ impact for at least the next six months. “Hurricanes are the most costly” extreme weather in the US, in terms of dollars-per-event, a climate scientist told Business Insider — one official estimate from 2023 puts that figure at $1.3 trillion since 1980.