There is a new blog post out at the Southern Plains Perspective. Read below! The Southern Plains Perspective is authored by Clay Pope- who farms with his wife Sarah and is a contractor for the USDA Southern Plains Climate Hub in the area of outreach.
Another week, another story about how the changing climate is impacting insurance.
Another Story hit the press this month about how the cost of natural disasters impacts the insurance industry. It seems that companies that “reinsure” insurance policies—that is those companies that provide the financial backstop to the company that issues your home insurance—are getting more and more concerned about how major storm events are taking a bite out of their bottom lines.
When an area gets hit with a catastrophic event like a hurricane, wildfire, or tornado, reinsurance companies step in with cash (generally large amounts of cash) to cover the cost if the damage is too widespread and pricey for an insurance company to cover on their own. These companies are now raising their prices due to the losses that have continued to grow as extreme storm events become more and more common.
In the weeks leading up to January 1, when about half of these reinsurance policies are generally renewed, it was reported that many reinsurers broke the news to the insurance companies they underwrite that their prices were going up. It seems that reinsurers have lost money over the last four or five years as they competed to offer the best terms to customers and still deal with disasters like the wildfires that devastated the Hawaiian town of Lahaina and the storms that tore apart roofs from Alabama to Massachusetts in early August.
Due to these losses, prices for reinsurance had to go up. When these policies go up, insurance companies either feel the squeeze, increase rates or are (if the costs are high enough) forced to pull completely out of markets where they are dealing with more risk. That’s why many insurance companies have pulled back from offering coverage in certain areas or cut the kinds of damage they will pay to repair—I wrote about this in an earlier blog-(https://southernplainsperspective.wordpress.com/2023/07/10/just-sittin-around-repeating-myself-we-need-to-take-extreme-weather-adaptation-seriously-because-climate-change-is-real-and-its-having-economic-impacts/).
This story went on to say that since the beginning of the year, insurance companies have paid out $40 billion to U.S. customers, putting them on track for another record in yearly losses. These losses were then passed on to reinsurers. According to a report by Gallagher Re, a brokerage firm that puts together reinsurance coverage deals, this hit to the bottom line of reinsurance companies has resulted in an increase in reinsurance policies of as much as 40 percent. This was one of the factors that some insurance companies cited when they stopped writing homeowner policies in parts of California due to wildfire risk.
And if you think this is just hitting homeowners in certain places, you should know that last month the Des Moines Register reported that these same costs were also forcing one agriculture insurance company to pull out of Iowa. Granted, Federal Crop Insurance works a little differently than homeowners’ insurance, and farmers in Iowa may still get coverage, but this drives home the point that risks from extreme weather ARE increasing, and there are economic consequences that we are all going to have to deal with from all of this.
So what do we do?
Obviously, we can’t control the weather. We can, however, take steps that can help us reduce the impact extreme events can have on our homes, our outbuildings, our livestock and our crops. I would again remind folks that help is available to help harden your operation to extreme weather. You would do well to talk to the folks at your local USDA Service Center to see what options you have to better manage your soil to hold on to moisture when it rains and to control erosion with the help of NRCS. You also can make sure you are taking full advantage of the risk management tools available through the USDA RMA and FSA. You also should ask your local cooperative extension folks for tips on how to fire-wise your farmstead or better prepare for extreme events like swings in heat and cold.
This issue is not going away. The more we ignore it, the more likely it will cost us in the future.
