As announced in a report issued this week by the National Oceanic and Atmospheric Administration (NOAA), 2017 was a historic year, and not at all in a good way. Climate-related disasters, including the hurricanes and wildfires that dominated headlines during late 2017, exceeded $300 billion in costs last year – a new annual U.S. record. In fact, last year’s weather events shattered the previous record dating back to 2005, when the likes of Hurricanes Katrina and Rita added up to a total of $214.8 billion in damages.
In addition to the California wildfires and Hurricanes Harvey, Maria and Irma, NOAA’s accounting also included droughts in the Dakotas and Montana; flooding in Missouri and Arkansas; and episodes of severe weather ranging from the Great Plains to the U.S. Southwest.
When looking back over the past few decades, NOAA estimates that 215 disasters costing at least $1 billion have socked the U.S. since 1980, resulting in as much as $1.2 trillion in damages. Citizens can agree to disagree whether man-made climate change has had a role in these extreme weather events until everyone is blue in the face, but the reality is that these trends do not appear likely to reverse themselves at any time soon.
The daunting numbers NOAA released this week should be a loud wake-up call for more insurance companies, which in general have long overlooked the potential risks that climate change could have on their portfolios. Observers of this sector say that insurers must acknowledge the fact that weather-related events will cause harm to more homes and businesses, not to mention having an adverse effect on human health in the coming years.
Worldwide, insurers paid out an all-time high of $135 billion in 2017 due to weather-related disasters, according to the Washington Post.
From the point of view of the sustainability nonprofit Ceres, insurance companies should become more sensitive about risk exposure more than ever before. While more insurers in recent years have incorporated climate change risks into their long-term strategic planning, Ceres’ researchers insist that many of these companies could be in for a huge shock sooner than expected.
“The sheer number of Americans affected by extreme weather this past year, and the broad geographical spread of those disasters, means that national insurance brands may not be able to meaningfully reduce their risk exposures without dropping many customers from their rolls and potentially sacrificing crucial market share,” said Cynthia McHale, director of Insurance at Ceres, in an emailed statement to TriplePundit. “And this is an approach that policyholders, regulators, and other stakeholders would likely strongly object to.”
McHale also mentioned that when considering that the insurance sector is a data-driven industry, the sheer numbers NOAA has presented should be hard for the sector to ignore. More of these companies, in fact, should ensure that their future policy decisions related to climate resilience and mitigation use the best available science. Furthermore, insurers could also help reduce future climate change impacts by beginning to move their investment portfolios toward assets that are low-carbon and more sustainable.
“We hope the terrible destruction of 2017 will mark a turning point for the American insurance industry,” said McHale. “Many of the largest and most recognized brands must warn their customers about the risks of climate-driven extreme weather and the steps they can take to prepare.”
Image credit: NOAA