How does climate change impact homeowners’ insurance companies? This is what a recent study published in Humanities and Social Sciences Communications hopes to address as a team of researchers from Israel investigated how climate change influences insurance company policies, and even their profitability. This study has the potential to help scientists, insurers, legislators, and the public better understand the non-ecological implications of climate change and the steps that can be taken to mitigate them.
For the study, the researchers built upon longstanding model regarding capital expenditures relating climate change to insurance company policies. The goal of the study was to enhance these models that have focused on the agricultural insurance market and added property insurance to the model. The motivation of this study is the increasing frequency and strength of climate change events, specifically hurricanes and the damage they cause. In the end, the researchers found that increasing damage caused by climate change and the socioeconomic cost could result in insurance profits decreasing between 11 to 100 percent.
“Insurance is commonly viewed as a tool for transferring risk over time and across geographies, yet natural disasters occur in the same places at the same time,” said Moran Nabriski, who is a PhD student at Tel Aviv University and lead author of the study. “As natural disasters intensify, the insurance industry should represent the economy not only as a responder to a changing climate, but also as a leader in confronting it. Because insurance connects all sectors of the economy, it can leverage that position into a coordinated effort with a meaningful impact on climate risk.”
As noted, climate change is causing more frequent and stronger storms worldwide, resulting in increased property damage. As a result, insurance companies that are responsible for managing risk and compensating homeowners for their losses could also face their own profit damage. Therefore, studies like this could help insurance companies maintain their business models while ensuring they can insure individuals for their damages.
How will climate change continue to impact insurance companies in the coming years and decades? Only time will tell, and this is why we science!
As always, keep doing science & keep looking up!
Sources: Humanities and Social Sciences Communications, EurekAlert!
