As storms intensify, the probability of large-scale property damage climbs, according to Carolyn Kousky, executive director of the University of Pennsylvania’s Wharton Risk Center and an expert on climate risk management. Insurance companies, therefore, have to amass even more capital to pay for all the claims from homeowners to protect themselves against bankruptcy-triggering losses.
Companies and homeowners have not made the adjustments to adequately prepare for a world of higher risk, Kousky said.
“What it really comes down to, in my mind, is that the cost of insurance is related to the risk, and so insurance costs go up when risk goes up,” she said. “The real way to kind of solve this problem is to reduce the underlying risk — and we haven’t done that nearly enough in any place that’s prone to these disasters right now.”
Experts also question whether officials in vulnerable U.S. cities are financially prepared to protect homeowners and urban infrastructure from the damage of storm surges and winds.
“New York, for example, might have enough money to build a big flood wall,” said Dag Lohmann, chief executive officer of KatRisk, a climate catastrophe modeling agency. But other places might not have the resources, he said.
This article was provided by Bloomberg News.