The market for property insurance vs. climate change

That is the topic of my latest Bloomberg column, here is one bit:

One of the classic rejoinders to worries about climate change is the claim that people can move out of highly vulnerable areas into safer areas. Maybe the world will not be willing to accept hundreds of millions of climate-change refugees, but within the US, perhaps people can move from storm-prone Florida to the northern Midwest, or to wherever might prove appropriate, including safer parts of Florida. The US, after all, has a longstanding tradition of individual mobility. And many parts of the country have the space and infrastructure for additional residents.

For such migration to have any effect on the costs of climate change, however, price signals have to be active and relatively undistorted. That is, some set of market prices has to be giving people impetus to leave one place for another. And policymakers have not been letting insurance markets perform their proper work in this regard.

And on the details:

Currently the market for Florida property insurance is in a pretty bad way. This year six relevant insurance companies went insolvent, and for Florida underwriting losses have run more than $1 billion for each of the last two years. Not surprisingly, insurers have been cutting back their coverage in the state or leaving altogether. The end result is that homeowners are finding it much harder to get coverage and finding it much more expensive when they do. None of this should come as a surprise, given the immense damage wrought by Hurricane Ian and previous storms.

Yet politics is stifling market adjustments. Florida has a state-run insurer of last resort, called Citizens Property Insurance Corp. Not surprisingly, that insurer has financial problems of its own, and in May Governor Ron DeSantis oversaw an additional $2 billion in reinsurance support for the company’s efforts. In other words, the state government is stifling the market signals that might induce some of the state’s homeowners to leave for drier pastures.

But don’t put your hopes in the Florida gubernatorial election. DeSantis’s Democratic rival, Charlie Crist, has criticized the governor for not doing more on the property insurance front and has proposed 90-day emergency insurance coverage for residents. That would stifle market incentives all the more.

I should note that water subsidies for the Southwest are another example of the same general phenomenon.


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