Property owners are starting to see the ugly repercussions of climate change on a warming planet. Destructive weather events like hurricanes, rainstorms, and large forest fires are becoming more common. From 1980 to 2021 there was an average of 7.7 events that caused $1 billion dollars or more in damage (CPI-adjusted of course). In the last 5 years, on the other hand, the average was $17.8 billion.
This alarming acceleration of losses from natural disasters has so far been paid for by a combination of property insurance, governmental relief agencies, and the individuals whose losses are uninsured. If disaster occurrences keep growing exponentially and we don’t find ways to relocate people out of risky areas we might face an insurance calamity that could put a huge burden on homeowners and taxpayers, leave billions of dollars of property uninsured, and even lead to a mortgage industry crisis.
Property insurance exists to help fund repair and rebuilding after large natural catastrophe disasters, but it has a limit to what it can cover. The industry is massive and growing. In 2021 it took in $715 billion in premiums, an almost 10 percent jump since the year prior. But it is not consistently as high margin as one might think. On average, the insurance industry makes around $54 billion annually in net income after losses, expenses, taxes, and shareholder payouts.
As profitable as the insurance industry may seem, many years of those profits could easily be wiped out by one large disaster.
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