Climate Change Impacts on Insurance in Florida

Abstract

Climate change presents added risks as well as related opportunities for the insurance industry and financial sector. Implications must be evaluated for property, casualty and life insurance industry segments as well as for the financial sector more broadly. While climate change exacerbates the existing volatility of these markets, it also inherently creates opportunities for product development. Florida is a unique contributor to both the risk and opportunity since the state is the world's largest insured catastrophe region. The state of Florida itself is heavily leveraged as insurer for much of the cost of extreme weather in the form of hurricanes and other tropical storms. Unlike other insurance risk bearers, however, this state cost of risk cannot be offset by commensurate market opportunity. Increased volatility in insurance, reinsurance, and capital markets are all challenges for Florida, with potentially adverse collateral effects on residual insurance market pressures, policyholder assessments, state debt, and tax strategies. Insurance industry initiatives, to the extent they are successful, can have a balancing effect on these challenges. Key Messages • The potential for substantial changes in the climate make the risk assessment, underwriting, and pricing of insurance and insurance-linked securities more complex. • Catastrophe loss models incorporate scientific assumptions about climate change into the risk assessment capabilities for multiple disaster perils, including hurricane, flood, and wildfire, among others. • Insurers and reinsurers are at the forefront of research regarding the effects of climate and climate change on future loss costs, loss uncertainty, and opportunity. • Florida is and will continue to be one of the world's largest insured, catastrophe markets, and as such is highly vulnerable to changes in the climate as well as changes in the markets for protecting against financial risk. • It is especially important for Florida and Floridians to implement smart ways of adapting to climate change and its effects in order to protect our economic sustainability.