People look to insurance companies for help after environmental disasters, but a report has shown how the industry’s investments might contribute to these catastrophes.

What’s happening?

Capital & Main published an article exploring the link between insurance companies and Big Oil. According to the piece, the insurance industry dedicates 4.4% of its investment portfolio to dirty fuel companies. 

This investment strategy works against the insurance industry. While it profits from dirty fuel and oil companies’ premiums, it loses money covering homes impacted by unstable climate conditions. 

According to the report, leading insurance companies collected $11.3 billion in premiums from Big Oil companies, but they reported $10.6 billion in losses caused by climate change. 

Specifically, many insurers lost money by paying out policies on homes ravaged by the Los Angeles wildfires. However, they fund the same companies accelerating the rate of rising global temperatures and contributing to the frequency and severity of extreme weather events like wildfires.

How do these investments hurt homeowners?

Significant losses due to climate catastrophes have led insurers to halt new policies. Some have declared they will not offer new policies in high-risk flood and fire areas. They’re also refusing to renew coverage for policyholders in these regions.

Most home loans require homeowners insurance. People unable to get a home insurance policy will be unable to receive a mortgage. Economists worry this could lead to a mortgage crisis.

A study by Brookings Institution noted, “Rising premiums and limited availability of insurance can have significant ripple effects across housing markets, reducing demand (and housing values) for homes in high-risk areas.” 

Insure Our Future, a global campaign to hold the insurance industry accountable for its role in the climate crisis, warned, “Insurers’ self-reinforcing cycle of driving climate risks higher and restricting coverage for those risks is threatening public interest and financial stability.”

U.S. property values, especially in climate-affected areas, could plummet. This would severely hurt the American economy, leading to, as the Senate Budget Committee put it, “[something] similar to what occurred during the 2007-2009 mortgage meltdown and ensuing global financial crisis.”

How can people in high-risk areas get home insurance?

The glaring solution is for insurance companies to cease investing in oil and dirty fuels. Organizations like Insure Our Future criticize insurance companies for supporting Big Oil. But other solutions have also been explored.

States like California initiated insurer-of-last-resort programs. These offer coverage to those being rejected by private insurers. However, the programs are overwhelmed and underfunded. 

Senator Josh Becker and the Nature Conservancy worked on a bill requiring insurers to account for risk mitigation efforts. But, according to Jones, “The insurance industry killed it … through lobbying and donations to lawmakers.” 

Without the industry’s cooperation, homeowners and the housing industry continue to be at great risk.

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