Insurers Are Running Away from Climate Change – And It’s a Problem

Insurance carriers have been leaving Florida in droves. In fact, three more legacy carriers dropped 50,000 policyholders just a couple months ago. The same is happening in California, where insurance carriers discontinued coverage for 235,250 policyholders in 2019. And considering the cost of Texas’ deep freeze last February, with losses estimated between $18 billion and $50 billion, I’m willing to bet that at least some insurers will leave the state soon, too.?

The common denominator among these three states is climate-related risks. Each of them are facing increases in insured losses because of climate change. The story is that covering these claims is so astronomically expensive that carriers are forced to leave.

Or are they?

The issue here is thinking the only sound business choice is to abandon the people who need our products the most. Don’t get me wrong –?climate change is a huge problem for our industry, and legacy insurers aren’t equipped to handle it. But running away isn’t the right answer. There are better solutions, and we’re finding them.

The Hardest Hit States Didn’t Cause the Problem

Let’s start with one fundamental truth: the people hardest hit by climate change played no bigger role in creating the dynamic than the rest of us did. Yet the burden currently falls disproportionately on their shoulders, whether that’s a year-round fire season in California or back-to-back-to-back hurricanes in Florida.

Now imagine living in those communities where you pay some of the highest homeowners premiums in the nation, which legacy insurers are happy to collect until disaster strikes. Then they cut bait and run, leaving homeowners who are already struggling in the lurch. That’s not just wrong – it’s counter to the whole point of insurance: to be there when things go wrong.

You Can’t Outrun Climate Change

Climate change is a global problem. While Florida is experiencing the brunt of the impact now, the rest of the country is only a decade behind –?if that. Remember the Midwest floods in 2019? It cost a cool $6.2 billion, and those events will only get more frequent.

In other words, there is quite literally nowhere to run from climate change. Legacy insurers can continue to tighten their underwriting guidelines, but it means that large swaths of the country will be uninsurable in the near future. And even consumers who fit their guidelines may find themselves priced out of coverage, much like homeowners in Florida are now.

Climate-Related Risks Are Knowable

Kin doesn’t have to cut and run because we access better data that allows us to bring more sophisticated underwriting to areas most impacted by climate change. Plus, our direct-to-consumer distribution model is the best structure for deploying that data. It eliminates the need for costly agents who are fundamentally misaligned with the carriers they work for. All of this translates into better allocation of risk and better pricing.

The fact that lower prices are possible through better risk assessment makes it seem even more unfair that legacy expense ratios have stayed the same despite skyrocketing premiums. Just because there are more claims shouldn’t mean carriers and brokers have more money to waste.

We Can Redistribute Climate Risk

Better data and direct-to-consumer distribution are key to handling the new normals that climate change brings. We’re not only better able to assess risk, but we can also counsel our customers on how to best mitigate it. We can show them how to better fireproof their homes or improve their roof integrity.?

Perhaps even more importantly, we can redistribute the burden climate change brings across a larger pool. This is why Kin continues to build out nationally, bringing the same five-star customer service and data-driven underwriting sophistication to more communities. The more people we serve, the more data we have for better underwriting, pricing, and allocation of risk.

Climate change isn’t just Florida or California’s problem – it’s everyone’s problem. Never has there been a more important time to address its monumental impact on the insurance industry and the world. Insurance companies that don’t reckon with that reality by embracing new data sources and DTC distribution will be anachronisms in the very near future.