Is the World Becoming Uninsurable?
The question of whether the world is becoming uninsurable is increasingly relevant as global risks escalate. This concern is raised not by insurance industry insiders but by individuals observing the broader implications of systemic risk. Homeowners unable to obtain hurricane insurance and residents facing wildfire-prone regions are among those experiencing the tangible effects of this shift.
Recent reports highlight the issue:
These headlines point to a growing consensus: the probability of entering an era marked by higher risks is increasing. The insurance industry, grounded in financial pragmatism rather than political debates, is responding to soaring losses by withdrawing coverage from high-risk regions, increasing premiums, and reducing coverage options. Losses now far exceed inflation, underscoring the severity of the crisis.
Limits and Systemic Risk
The global response to risks often assumes that political or technological solutions can mitigate them. However, some problems defy these approaches. One prominent example is the concept of governments acting as “insurers of last resort”.
California’s FAIR plan, a state-run last-resort insurer, illustrates the challenges. Its exposure has risen by 61% in one year, prompting warnings that the programme is "one bad fire season away from complete insolvency". Policymakers’ attempts to mandate coverage for high-risk areas or rely on public funds to backstop private losses only shift the financial burden rather than addressing the root cause: rebuilding in disaster-prone areas is no longer viable.
Historical precedents offer lessons. During the Little Ice Age in the 1600s, climate-induced agricultural failures led to widespread social and economic crises. Similarly, the Roman Empire faced systemic collapse during the Third Century Crisis, driven by climate change, plagues, and economic instability. These examples demonstrate how rising risks, when unacknowledged, can destabilise entire civilisations.
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The Illusion of “No Limits”
Modern society is built on the assumption that technological innovation and political action can solve any problem. This mindset ignores the fundamental reality that nature imposes limits. As climate change drives extreme weather, food shortages, and infrastructure failures, these limits are becoming impossible to ignore.
For example, insurance depends on the ability to model and predict risks, but certain phenomena, such as wildfires, are inherently harder to quantify. Without reliable models, insurers are retreating from markets, and governments stepping in to fill the gap risk creating unsustainable financial liabilities.
A System Under Strain
The world is becoming uninsurable in two critical ways:
This trend reflects a broader issue: interconnected global systems, from supply chains to food production, are amplifying risks. Transferring those risks to the system as a whole only delays and magnifies the eventual consequences.
The Path Forward
The current trajectory is unsustainable. Efforts to preserve existing systems and mitigate risks without acknowledging real-world limits will lead to greater crises. Historically, societies that failed to adapt to rising risks have suffered catastrophic consequences.
The solution lies in recognising the inevitability of limits and adapting to them. This requires difficult decisions about what can be preserved and what must be sacrificed. As the world grapples with uninsurable risks, these choices will shape the future of global systems and the sustainability of modern life.