Well now . . . The news that State Farm is going to stop writing new homeowners business in California didn’t surprise me at all, but it did ring a powerful bell. All the way back in 2007 I was writing that climate change would be taken seriously and action would be taken once the economic impact of doing nothing showed up through the intermediary – perhaps it should be called the canary in the coal mine – of the insurance industry. I discussed it here, here and here, among other places. If anything, way back then, I was too sanguine on the issue. In my defense, I was a lot younger then.
Hamilton Nolan, in his article “Insurance Politics at the End of the World,” isn’t sanguine at all, but then things are much more serious- and the impact of climate change much more damaging – now. You will note that in this post on the subject in 2010, I mentioned how concerning it was to me that “I look[ed] out my window here in Boston at temperatures in the mid-forties and sunshine” in March. This past winter, I probably saw that weather in the beginning of February.
What I do like about Nolan’s article is that it drives home the point, which gave rise to my own posts on this subject a decade ago and longer, that the underwriting discipline of the insurance industry is what is at play here. This is not some sort of wishy washy ESG thing. Instead, the industry prices all risks – not just climate exposures – based on hard numbers and data, and that is why climate change losses are now getting priced into insuring against risks in ways that no longer allow rational economic actors – or even just everyday homeowners, whether rational or instead irrational – to ignore the impacts of climate change.