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> The issue here has less to do with climate change itself and more to do with a combination of regulatory and economic factors. The issue is not that the insurance regulations have tightened or changed. The issue is that the climate risks have heightened and the regulations have NOT changed to match the heightened climate risks. Small increases in average temperature of the air leads to large decreases in average moisture content of brush and vegetation, making fires more common and more likely to impact more homes. The insurers have the data, that's why they are acting the way they are. Fires are more common and fires are larger. Not politics. Actuarial data compiled by insurance companies. If you've spent any time with insurance CEOs, you'll know they are not bleeding heart liberals. They tend to be very conservative and very data driven. And they have the data and it impacts their business. The regulatory issue is that, to prevent historical forms of bad behavior on the part of insurers, state regulators require that insurers can only set pricing for fire insurance (for example) on the basis of historical data, not on the basis of forward-looking projections. That's the right thing for regulators to do in normal circumstances, when the risk environment isn't changing, but if the risk environment is changing it means you as an insurer will need to pay out money in the future at a higher rate than you did in the past, but you can only collect money based on lower historical payout rates. You are, in practice, required by the regulators to now offer your product at a loss not because the regulations changed but because the average daily temperature is increasing ever so slightly but just enough to significantly increase your cost. You don't want to offer a product at a loss, so you leave the market. As to why insurance is a regulated industry, in large part that's because insurance is one of the few products the government requires you to purchase, distorting the market, and also in large part because there are massive asymmetries of information between consumer and provider - insurance companies have much more information about risks than insurance customers do, which prior to regulation led to abusive practices on the part of the insurers, in ways that led voters to say "this is a problem that needs to be fixed." All big problems are hard, and insurance regulation is a big hard problem. If you just say "the environment is changing, so insurers should be able to set prices based on forward-looking projections" you help with the climate pricing increases but are likely to get other unrelated bad behavior at the same time (forward-looking projections are notoriously easy to fudge or fake in ways that are massively favorable to the person making the projections). If you don't allow for forward-looking projections, you lose insurers, if you do allow for it, you get abuses. "Just do it the right way" is much easier to demand in a blog post or comment thread than it is to deliver in legislation. |
Fires in the USA are far less common than they were 100 years ago. Here's a rendered graph of data from the US National Interagency Fire Center:
https://imgur.com/a/MZMmc06