Catalyst with Shayle Kann
How climate disasters are shaping insurance markets
Apr 10, 2025
Judd Boomhower, an assistant professor of economics at UC-San Diego, dives into how climate disasters are reshaping insurance markets. He discusses why insurers are pulling out of high-risk areas like California and Florida, and the unique challenges of disaster insurance facing simultaneous claims. The conversation highlights the limitations of catastrophe models and the complications of private reinsurance markets. Boomhower also explores parametric insurance as a possible solution, shedding light on the world of undercapitalized insurers and their risks.
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Quick takeaways
- Insurers are withdrawing from high-risk areas due to rising disaster losses, forcing them to reevaluate their coverage strategies amid climate change challenges.
- The emergence of parametric insurance aims to streamline claims processes, but it faces challenges like basis risk that need addressing for widespread acceptance.
Deep dives
Impact of Climate Change on Homeowners Insurance
Climate change has significantly influenced homeowners insurance, primarily through the increasing frequency and severity of weather-related disasters. Major events such as California's 2017 and 2018 wildfires and devastating hurricanes have led to substantial spikes in insurance claims, which in turn have caused insurers to rethink their pricing structures. These rising disaster losses force insurance companies to raise premiums or withdraw coverage from high-risk areas entirely, as they struggle to adapt to the changing risk landscape. The cumulative effect of these disasters highlights the urgent need for insurers to develop more resilient models that better account for climate variability.
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