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ad-free, only on Apple Podcasts. Risk

19:41

is invisible. People don't

19:43

see risk until something bad's happening,

19:45

unless you're the person running the

19:47

models and doing the assessments. Carolyn

19:50

Kusky works for the Environmental

19:52

Defense Fund. And I

19:54

look at the economic impacts of climate

19:57

change. In particular, she's spent a lot

19:59

of time in the world. of time studying

20:01

disaster insurance and mayor's

20:04

main question. How

20:06

doomed is the insurance industry?

20:09

That's a good question. And I

20:12

think how doomed the industry is depends a

20:15

lot on policy interventions and

20:17

what we do in the next

20:19

few years. Rising insurance rates

20:21

have been a confluence of things. And

20:23

it is definitely the case that because

20:26

of our prior period of

20:28

high inflation, supply chain disruptions, labor shortages,

20:30

that is part of what's driving up

20:32

higher insurance costs. Absolutely.

20:34

What we also see though is that rates

20:37

are going up even more in the areas

20:39

of high climate risk. And where insurers are

20:41

pulling out of markets, it's areas of high

20:43

climate risk. And as risks go up, you

20:46

can increase the cost of insurance to

20:48

still keep it viable, but then you're

20:50

making it harder and harder for low

20:52

and middle income Americans to afford the

20:54

coverage they need. That is

20:56

now front and center for lots

20:59

of people. The increasing rates, the

21:01

declining availability have really started to hit

21:03

households in a way

21:05

that's really making clear the

21:07

economic impacts of climate change. And so I think

21:09

we're at a window where we know we need

21:12

solutions. We can't keep letting this spiral out of

21:14

control. And if

21:16

we are not careful in those

21:18

though, we could lock in policy

21:21

change that doesn't lower our

21:23

risk going forward and essentially makes insurance

21:25

a luxury of the affluent. And so

21:27

I think we need to think really

21:29

carefully about our policy interventions at this

21:32

moment and make sure they're getting us

21:34

the long-term objectives that we want. How

21:37

do insurance companies then determine where to

21:39

set your deductible and where to set

21:41

the premiums? Yeah. So

21:43

that's the rise of what are called

21:46

catastrophe models. These are big

21:48

models that insurance use to decide where to

21:50

offer policies and how much to charge for

21:52

them. And that's been

21:54

really important for a number of reasons.

21:57

One is the historical record is

21:59

too. provided

24:00

flood insurance. These state programs

24:02

are providing insurance. So

24:04

when things become uninsurable, it really

24:06

means we have the public sector

24:09

pick it up. And

24:11

that's still attention that we're seeing right now

24:13

because what's happened in the last few years

24:16

is that many insurance companies have

24:18

raised rates or exited these high

24:20

risk areas, forcing consumers into these

24:23

state programs. So California, Louisiana, Florida

24:25

have all seen dramatic increases in

24:27

the number of residents who have

24:29

to find coverage through the state

24:31

program. And so that's raising these

24:34

questions of who should pay for

24:36

the cost of disasters. In

24:41

the case of Joe, the insurance executive

24:44

who was struggling to find insurance on

24:46

his own home, he

24:48

was forced to go to his state's

24:50

public insurance program, Louisiana

24:52

Citizens. Well, it's not

24:54

an exaggeration to say that everyone I've spoken

24:57

to has to be with citizens, just everyone

24:59

below I 10. These

25:01

state run insurance companies, they function

25:03

basically as what they call an

25:05

insurer of last resort. But

25:07

the coverage that they provide

25:10

is just frankly not very good.

25:12

And that's by design, it's very

25:14

expensive policies that have very high

25:16

deductibles, and that don't cover very

25:18

much. Because again, it's just meant

25:20

to be an emergency backstop. The trouble is

25:22

with all these private insurers pulling out, there

25:24

are a number of people in a lot

25:26

of states who are finding out that they

25:29

have no option, other than the

25:31

state run insurance companies. So

25:33

the last line of defense becomes the only

25:35

option. If another Katrina,

25:37

God forbid occurs, and the

25:40

city has just overwhelming losses, or the state in

25:42

general, right? I mean, the money has to come

25:45

from somewhere. And at the end of the day,

25:47

it's coming from taxpayers. So

25:52

Joe is stuck paying premiums

25:55

he can barely afford. In

25:57

a house, he doesn't know if he'll be able

25:59

to sell. sell in a

26:01

state that's on the hook for footing the

26:03

bill in a world

26:05

where the risk of climate disaster

26:08

just keeps ratcheting up. In

26:10

10 years, will I have waterfront property? Will

26:12

I be underwater? Will it be pretty much

26:14

exactly the same as it is right now?

26:16

I can't answer that, but

26:18

it absolutely is something that is

26:21

being brought to the forefront in terms of risks. My

26:24

wife and I have conversations from time to time about,

26:27

well, where would we go? This

26:29

isn't just a Louisiana issue. This isn't

26:31

just a New Orleans issue. If

26:34

it's hurricanes here, it's flooding there, it's wildfires

26:36

there. It's not just one city. It's not

26:38

just one state. And here's where

26:40

it gets doomsday, right? We're all used

26:42

to hearing the hottest year on

26:44

record, hottest month on record. If

26:48

you flip that and say, that means

26:50

this summer was the coolest you

26:52

might see in your lifetime, that I think

26:54

starts to drive home what we're dealing with.

26:57

There's really no way around it. If

26:59

you're going to be facing more sea

27:01

level rise, more flooding, more wildfires, you

27:04

really need to find a way to reduce

27:06

those overall risks. And the

27:08

insurance industry might be in a unique

27:11

position to do just that. It

27:16

may seem like our current

27:18

insurance crisis is locked in.

27:20

The inevitable outcome of math

27:23

equations and catastrophe models. But

27:27

the insurance industry has leveraged

27:29

to reduce our overall climate

27:31

risk. They're

27:33

very powerful players because they're

27:35

sitting on giant piles of money, trillions

27:37

of dollars of capital essentially is running

27:40

through these companies. So

27:42

insurance companies are a lot like banks in that

27:44

regard. They don't just put

27:46

your premium money in a vault and save it

27:48

for a literal rainy day. They do

27:51

invest it. Re-insurance

27:53

companies are especially investing in clean

27:55

energy companies. They are trying to

27:57

promote investments in businesses. and in

27:59

practices that they think are going

28:01

to reduce risks over the long

28:03

term. In

28:05

the short term though, climate disasters

28:08

from big name hurricanes to

28:10

local hail storms are

28:13

going to be a bigger and bigger part

28:15

of our lives. But

28:17

there's also real opportunity here

28:19

for insurance companies to help

28:22

us lower our exposure to

28:24

these disasters. There's a

28:26

really big opportunity for insurers to

28:28

lean in and helping their policy

28:30

holders after a loss to

28:32

rebuild in a way that's more resilient. To

28:34

say, okay, now you need to repair, but

28:36

let's do it in a way that is

28:39

making your home safe for

28:41

the future and the future risk that you're going to face.

28:44

And maybe by putting all these

28:46

pieces together, we can get out

28:48

of this crisis, look risk in

28:50

the eye and stabilize

28:52

the insurance market right

28:54

when we need it the most. There's

28:57

not a silver bullet answer. There's not

28:59

a perfect program to implement or product

29:01

that's going to solve everything. There's not

29:03

some new standard to design to because

29:06

risk is going to keep changing. What

29:08

we need is a shared culture

29:10

of risk management, which

29:13

means bringing people into the insurance

29:15

conversation that are new to it.

29:27

This episode was reported by Umera Fon,

29:30

produced by me, Meredith Hadnaught, and

29:33

edited by Matt Collett, with

29:35

help from Jorge Just and Noam Hasenfeld.

29:38

Sound design and mixing from Christian Ayala,

29:41

music from Noam, and fact-checking

29:44

from Anouk Dusseau. Bird

29:47

Pinkerton dove deep, passed

29:50

a school of clownfish, passed a

29:52

great barracuda, passed a whole bunch

29:55

of sea turtles, and

29:57

then, almost a thousand feet

29:59

away.