With extreme weather events becoming more frequent and powerful, experts are noticing a concerning trend in high-risk communities. Across the globe, insurance companies are dropping coverage of areas deemed too risky for resilience investments.
Insurance Business reported that the current resilience finance framework could lead some urban areas to be deemed "uninsurable" in the near future. In a simplified sense, resilience finance is the provision of financial resources to individuals or communities to help them recover more quickly after a disaster.
Insurance Business cited a new report from the Resilient Cities Network and Tokio Marine Group titled Under Pressure, Overdue: The Portfolio Approach and Financing Cities for Resilience. In the analysis, the researchers explain how the aftermath of extreme weather events is causing premiums to skyrocket. For many homeowners, insurance has become so expensive that it's no longer affordable.
This trend has created what the report calls a protection gap -- the "difference between total climate-related losses and what insurers cover," per Insurance Business. Since backing high-risk areas is becoming risky for insurers, companies are increasing prices or dropping coverage altogether.
The new report from the Resilient Cities Network and Tokio Marine Group underscores the need for insurance companies to adapt their strategies to better account for the growing risk of extreme weather events.
As countries continue to rely on dirty energy sources, they emit harmful gases into the atmosphere, exacerbating the planet's overheating and contributing to extreme weather events. This, in turn, leaves certain communities, such as coastal areas and drought-prone regions, especially vulnerable to more powerful storms and therefore more expensive insurance coverage.
Experts are emphasizing the need for the insurance industry to change to better reflect the climate crisis. Tokio Marine Group CEO Brad Irick told Insurance Business that "the industry's role must extend beyond claims payouts to proactive risk partnership."
From a global perspective, countries need to prioritize renewable energy sources to reduce the amount of heat-trapping gases emitted by dirty energy sources. On an individual level, you can make small lifestyle changes to help reduce your environmental footprint and mitigate the impact of extreme weather. Some of these changes include eliminating single-use plastics, shopping secondhand, and opting for public transportation.