Insurance and Climate Change: Where Can We Afford to Live?

 You may never have thought it possible, but thanks to climate change insurance has become an exciting - even compelling - story.

The core issue is that insurance plays a driving role in where people can afford to live and do business. For instance, if you can't get property insurance, you can't get a mortgage, so you can't build or buy a house. Ditto for business insurance. And if your claims following a catastrophe are denied, delayed for years, or paid out for pennies on the dollar, your entire life course takes a turn - perhaps permanently. These events not only shift individual lives; they can shift long-term development, economic, and demographic patterns for entire regions.

Right now, the news media, courts, blogs, discussion forums, and public meetings from Louisiana and the rest of the Gulf coast are brimming with heated discussions about insurance. Watch these to get an idea for what might be coming to other coastal regions - and later, inland, thanks to increased risk of drought, flood, and fire. As far as insurance companies are concerned, risk is risk. Today, the stakes are higher and they're trying predictable strategies to cut their losses.

Some kinds of insurance company conduct to watch for include:

• MASSIVE CLAIM DENIALS. Your state insurance commission probably has statistics on historical levels of claim payouts. Get this context now, so you're not scrambling for it after a catastrophe. The National Association of Insurance Commissioners can provide contacts and offer guidance and national context. Press: Scott Holeman, 816-783-8909.
• ADJUSTMENT SHELL GAME. Often after a disaster, insurance companies will quietly instruct adjusters not to look for or find certain types of damage. For instance, wind-related damage may get attributed to water damage, or vice versa, whichever reduces the insurance payout. When internal adjuster reports do support significant claims, it's not uncommon for insurers to send out second or third adjusters, who report contrary findings that lead to claim denials. (Example: See the Feb. 7, 2007, Biloxi Sun Herald report on the settlement of 640 claims in a suit against State Farm.) When covering lawsuits over major claim denials, sometimes adjuster reports will come out as part of the legal discovery process. Get these if you can, and pay special attention to contradictory sequential reports.
• PROPERTY REINSURANCE CRISIS. Often after disaster strikes a region, especially a coastal region, insurers start to slip out of the local property insurance market. This can mean that homeowners who experienced little or no damage suddenly find themselves uninsured - a factor that can accelerate a downward spiral in property values and sales. Many older homeowners who have paid down their mortgages opt to "go bare" (forego insurance), at considerable personal risk. Some states, including LA, are trying to pass "anti-cherrypicking" laws to require insurers to continue to issue less-lucrative property insurance if they wish to stay in the more lucrative markets for health, life, and auto insurance.
• INDUSTRY REINSURANCE CRISIS. Within the global insurance industry, insurers turn to global reinsurers to offload their excess risk. These huge companies, such as Lloyds of London, Munich RE, and Swiss RE, are currently investing huge resources into predicting the global short- and long-term impacts of climate change. Their reports are quite telling, and steer the entire industry at all levels. A particularly influential June 2006 report from Lloyds of London was entitled "Climate Change: Adapt or Bust" (release). US press: Amanda St. Pierre, 212-382-4091.

MORE SOURCES:

• Insurance regulators are attempting to compensate for climate change. Currently, NAIC is trying to develop a multi-state catastrophe fund, which would distribute risk more broadly in the event of regional disasters, or disaster clusters (release).
• Although it's cryptic and secretive, Risk Management Solutions (RMS) is an important company to watch. They do the computer modeling on which much of the US property insurance industry makes its decisions about risk distribution. RMS's 2007 client conference is coming up May 1-4, 2007, in Palm Beach, FL. Press: Mark Prindle, 212-691-5860; or Shannon McKay, 510-505-3257.
• This Jan. 31, 2007, Insurance Technology story details the current controversy in FL over the impact of the assumptions behind RMS' latest catastrophe model.
• The advocacy group United Policyholders can offer info on many disaster-related insurance issues, trends, lawsuits, and compensatory measures around the US: Amy Bach, 510-763-9740.
• The Feb. 19, 2007, episode of the Public Radio International show Open Source is an excellent primer on brewing insurance-related controversies. See the online resources, links, and discussion. Listen to the podcast (24 MB mp3 file).