Cameron Parish, Louisiana, was once a charming collection of coastal towns known for its thriving shrimping industry and breathtaking night skies, shared James Hiatt. Hiatt, who resides in nearby Lake Charles, often visits Cameron to be closer to the Gulf. He fondly recalls a time when the population was 1,500, and the town boasted amenities like a grocery store and a Family Dollar. However, hurricanes started barreling through the area with increased frequency, and many commercial insurance companies stopped covering homes in Cameron. This unfortunate circumstance left Eddie Lejuine, a longtime resident of Hackberry and avid trout fisherman, with no choice but to turn to the state insurer, Louisiana Citizens, for coverage. The exorbitant cost of $16,000 to insure their home this year became unaffordable, leading the couple to consider canceling their insurance altogether.
The declining shrimping industry and dwindling population have forced many residents to relocate to more secure areas. With an oversupply of imported shrimp from countries like Ecuador and India flooding the market, prices have dropped and shrimpers are struggling to make ends meet. Lejuine has also noticed a decline in his trout catch, potentially attributed to factors like saltwater intrusion and channel dredging for gas tankers. As a result, the population of Hackberry has significantly decreased, and Cameron now only homes a few hundred individuals, with their houses elevated on stilts reminiscent of slumbering herons.
Interestingly, insurance companies have found a profitable enterprise in Cameron – a massive new liquefied natural gas (LNG) export facility. While Venture Global’s Calcasieu Pass LNG terminal joined two existing LNG terminals in Cameron Parish, the identity of the insurer remains unknown. The insurance company, which likely specializes in large commercial projects such as this, did not respond to inquiries regarding their involvement.
Paradoxically, while climate change is reshaping the American landscape and compelling insurance companies to mitigate risks associated with rising temperatures and sea levels, they have yet to cease insuring oil and gas projects that amplify these very risks. This contradiction has garnered the attention of the U.S Senate, with committee hearings questioning why insurers refuse to provide coverage for homeowners due to climate concerns while continuing to support environmentally detrimental industries through underwriting and investments. Senator Elizabeth Warren, during a recent Senate Banking Committee hearing, emphasized the “real risks to our economy” resulting from the dealings of insurance companies. The Senate Budget Committee also initiated its investigation into this matter in June.
In the worst-case scenario, the implications of mass uninsurability could lead to the collapse of the mortgage market. Without insurance coverage, obtaining a mortgage for a property becomes nearly impossible. Currently, First Street Foundation estimates that 39 million homeowners are paying insurance premiums that do not accurately reflect the risk their homes face, partly due to state regulations restraining insurance companies from charging proper rates. Consequently, insurance providers withdraw from these markets, resulting in plummeting home values. Senator Sheldon Whitehouse, Chair of the Budget Committee, warns of a repeat of the 2008 mortgage-market crash driven by climate change.
Prominent insurance companies, including Allstate, Nationwide, American Family, Erie Insurance Group, and Berkshire Hathaway, have already expressed their retreat from offering homeowner insurance in certain locations due to the increasing severity and frequency of extreme weather events. For instance, State Farm ceased issuing new policies in California this summer, citing “rapidly growing catastrophe exposure,” while Farmers Insurance pulled back many policies in Florida for the same reason. Obtaining commercial homeowner’s insurance in wildfire-ridden Colorado or flood-prone Louisiana has become more challenging and costly. As more homeowners turn to state-run insurers of last resort, there is a genuine risk of a major disaster overwhelming these insurers’ ability to provide adequate coverage. The insurance safety net is deteriorating, and the future remains uncertain.
Ironically, insurance companies maintain substantial investments in fossil fuels. Carroll Muffet, President of the Center for International Environmental Law, explains that insurance companies function as two separate entities under one roof. One business handles insurance policies, while the other manages vast sums of money derived from premiums. Consequently, insurance companies become major financial players in the economy. A report from Ceres, Persefoni, and ERM revealed that U.S. insurers held $536 billion in fossil fuel-related assets in 2019, a trend likely to persist.
Notably, State Farm Insurance stands out as the insurance provider with the most fossil fuel-related investments in the United States, including coal and tar sands projects. Berkshire Hathaway follows closely due to its significant shareholding in Chevron. AIG, another major insurer, collected $675 million in premiums in 2021 for covering the energy industry, which included underwriting tar sands pipelines and LNG projects.
Insurance companies such as AIG, State Farm, and Berkshire Hathaway declined to comment on these matters. Liberty Mutual directed inquiries to the American Property Casualty Insurance Association (APCIA), a trade group representing insurance companies. Nat Wienecke, APCIA’s Senior Vice President of Federal Government Relations and Political Engagement, emphasized that flexible business conduct aligned with widely accepted actuarial standards and diverse risk-based investing and underwriting strategies ultimately benefits consumers, society, and the environment. While fossil fuel-related investments comprise a small portion of insurers’ wider portfolios, Wienecke admits the need for policymakers to prioritize improved building codes, land-use planning, and retrofitting of existing infrastructure to mitigate risks posed by storms and wildfires. Alabama’s program offering grants for homeowners to reinforce their houses against hurricanes in hopes of lowering insurance rates highlights insurers’ influence in driving such initiatives.
Insurance companies argue that some states, like California, restrict their ability to incorporate future risk projections into their premium rates. These regulations aim to prevent models from overstating risks and leading to exorbitant premiums. However, following years of devastating wildfires that prompted a mass exit of insurers from the state, California has announced reforms allowing forward-looking catastrophe modeling starting in December 2024. Lindene Patton, an attorney and former Chief Climate Product Officer for Zurich Insurance Group, believes that other states will follow California’s lead.
While these reforms may result in increased premiums, the alternative of losing private insurance coverage entirely is less desirable. Additionally, the true costs of climate change externalities have yet to be addressed adequately. Establishing accurate pricing reflecting the high-risk nature of certain areas is a necessary step. The United States must confront the reality that some locations are becoming too hazardous to inhabit.
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