According to analysts, Hurricane Idalia could be the most expensive climate-related catastrophe to strike the United States this year, with enormous implications for the insurance and risk management industries.
UBS risk analysts estimate that the category 3 hurricane that pounded Florida’s west coast from the Gulf of Mexico on Wednesday will cost $9.36 billion based on early estimates.
A flooded roadway in New Port Richey, Florida, following the landfall of Hurricane Idalia. What is a hurricane surge? Learn the definition with our glossary.
The National Oceanic and Atmospheric Administration (NOAA) has already recorded 15 “individual weather and climate disasters” in the United States this year, as unprecedented heat, wildfires, hurricanes, and floods escalate.
Noaa estimated that by the end of July, which Nasa said was the warmest month on record for Earth, the total cost of damage caused by natural disasters was $39.7 billion. This amount does not include the estimated $5.5 billion needed to reconstruct the municipality of Lahaina following this month’s devastating wildfires on the Hawaiian island of Maui.
Tom Larsen, senior director of insurance solutions at CoreLogic, a property analytics company that publishes an annual hurricane risk report, stated, The costs are becoming unbearable.”
“The business of insuring for catastrophes used to mean exceptional, very rare events and that’s not what we’re seeing. These are much more common, so something’s got to change.”
Larsen noted that Hurricane Idalia’s impact on a rural and sparsely populated region of Florida, with fewer insured structures, would keep its eventual cost below that of other significant cyclones, such as Hurricane Ian, which struck last year and caused $113bn in damage.
Florida’s Fragile Insurance Market Faces Further Stress Amid Climate Challenges
However, he is concerned about the potential impact on Florida’s already fragile insurance market, which has seen several large providers depart or go out of business over the past two years despite efforts by state legislators to make it a friendlier place to do business.
Fewer providers result in higher premiums for consumers, and the price of reinsurance, which insurance companies purchase to limit their own exposure, has risen significantly. This cost is also passed on to customers, thereby exacerbating the crisis in the home insurance industry.
“The Florida market … has the characteristics that it should stabilize, but also it hasn’t gotten better over the last 12 months,” Larsen said.
“A storm like Idalia exposes our vulnerabilities. It is an area that hasn’t had a lot of strong events, which means its population of weakened homes is much higher.
“If things remain as they are, the numbers of billion-dollar events will go up, because the population is increasing. The cost is very high. We have to start thinking about how we can mitigate these costs. How can we build stronger homes that are more resilient to these effects?
“It starts with the same key themes we hear with climate, it’s resilience and sustainability. If we want to aspire to a sustainable future we’re going to have to start spending more time thinking about becoming more resilient.”
In Miami Beach, which is renowned as the epicenter of the climate crisis, city commissioners are spending millions of dollars to elevate roads and enhance drainage in order to withstand rising sea levels. New residences in Florida and elsewhere are more resistant to extreme weather as a result of code enhancements. But everything comes at a price.
CoreLogic’s hurricane risk report states, “Evidence shows that climate change is impacting hurricane activity in the north Atlantic with a higher proportion of stronger, wetter hurricanes that have the potential to travel further inland before dissipating.”
“The combined effects of these factors could significantly impact US properties in future years, including structures once considered out of reach of hurricane wind and flooding.
“Recent seasons have demonstrated that hurricane risk can, and likely will continue to, extend further inland, posing threats to millions more homes.
Source: The Guardian