A new storm is brewing in struggle over climate change: homeowner’s insurance

I learned that my insurance company was filing for bankruptcy too late on a Friday to do anything about it, so I called my insurance agent first thing the following Monday morning. Her response, delivered politely and compassionately was effectively, “get in line.” She was dealing with the fallout from two other companies that were declaring bankruptcy, and their customers had to be addressed before the end of the month. My company was not canceling policies until the middle of the following month, so I had a little time on my side. 

I am not alone in this insurance debacle; my insurance company was the seventh company to declare bankruptcy in Louisiana this year. While insurance is a complicated industry, with actors that range from individual ratepayers to local regulators and international reinsurance companies, one item stands out in this episode: climate change. 

The impacts of climate change to Louisiana are something I know about first hand. I work at a marine laboratory on the state’s eroding coast, and over the past 15 years I have watched the data, and the damage, of climate change first hand. In 2020, Louisiana was in the “cone of uncertainty” — the area that could experience a tropical cyclone — a record seven times. One of these storms, Hurricane Laura, was one of the two strongest to strike Louisiana in recorded history. The next year Hurricane Ida struck, matching or exceeding the strength of Laura, causing widespread destruction across the state’s central coast and even in many interior regions. 

Take this list in the context of storms that hit nearby areas in recent years — like Hurricane Harvey in Houston and Hurricane Michael in northwest Florida — and northern Gulf looks like a risky bet to insurance companies. While companies could theoretically raise premiums to match the risk, practically speaking many people cannot afford those higher rates. Faced with massive losses, and unable to raise premiums, companies declare bankruptcy. In the case of my insurance company, for example, they declared bankruptcy when Florida, where they also insure, denied their attempt to raise premiums by 85 percent.

Many people I know have also looked for new insurance, which they should be able to get from the state-run insurance plan, though at a higher cost. I got new insurance through this plan — with a premium increase of nearly $2,000. While I am told I should get a refund on remaining six months of my old policy — roughly another $2,500, I have no real idea of when that check will come through. The state agency in charge of backstopping insurance companies recently announced that it hopes to sell $600 million in bonds to cover claims from companies that are now bankrupt. The finances of all of this are complex, messy, and it is not always clear how all of the ends will meet.

Ironically, the present insurance debacle diverges from the state’s well-known flood hazards. In the years since Hurricane Katrina in 2005, federal, state and local authorities have spent tens of billions of dollars to reduce coastal flood risks as well as rebuild the state’s disappearing coastline. Those efforts have been relatively successful. In some cases, they have even helped make flood insurance affordable, but they have little bearing on the current situation. That is because flood risks are managed differently from other risks homeowners face. Flood insurance is managed a federal program, private companies are generally out of flood insurance market. Questions are also emerging about the federal government’s new flood risk rating system.

The damages that challenged Louisiana’s private insurers came mostly from a storm’s winds, not its rising waters. It is a reminder that climate involves everything in the air and water around us — and that the entire climate is changing.

What concerns me most is that this issue could grow nationally. While Louisiana’s climate risks are at the higher end of the spectrum, there are many places that are not that far behind. Florida is already having similar problems, and California is having related issues from fires. I worry that other storm-prone places in the Carolinas, mid-Atlantic or maybe even New England will not be too far behind. All of this, reminds me what a friend of mine, coastal restoration specialist, John Ettinger says, “Places will be underwater financially before they are underwater physically.” Here in Louisiana, the waters are rising physically and fiscally, and even if you do not live here, you should watch where they go.

Alexander S. Kolker, Ph.D., is an associate professor at the Louisiana Universities Marine Consortium. He studies climate change, sea-level rise, resilience and change in coastal systems. His work is based in the coasts and wetlands of the Mississippi River Delta, and he also has worked in systems across the world, including the Florida Everglades, New York and North Africa. His work involves a combination of field studies, data analytics and theoretical work.