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Climate Risk Is Becoming Uninsurable

Floods, electrical storms and wildfires, together with raw-material inflation, are pushing up premiums for so-called catastrophe insurance. For insurers, average annual losses—a conceptual long-run estimate of future losses—could reach a record $133 billion, according to risk-assessment firm Verisk Analytics. Uninsured losses will be even higher. In North America, only 51% of natural-catastrophe risk is covered. In Europe, it is 44%, and in Asia a paltry 12%. The fear is that more areas could become uninsurable. Underwriting requires confidence that models somewhat accurately reflect risks, which climate change is amplifying in scary, unknown ways. Forecasters are starting to marry both methods, with some startups promising transformative results. Other startups specialize in disasters that are too unpredictable for many insurance policies, with protection often depending on limited government support. U.K.-based CatRisk Solutions, for example, provides an earthquake-loss model covering 155 countries. In 2020, New York-based First Street Foundation released an online application where anyone can check their property’s flood exposure. It suggested that federal maps severely underestimate risks. The rising cost of disasters is more about population increases in hazardous areas than climate change itself. Inigo’s research suggests that demographic shifts have caused more than a doubling in expected annual losses since 1970, compared with a 25% increase from climate change.

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