Insurance companies facilitate climate change by financing fossil fuels — and then seek to raise rates because of the damage it causes.
Published October 7, 2024
By Lindsay Fenlock, Senior Researcher at the Center for International Environmental Law, Charles Slidders, Senior Attorney, Financial Strategies at the Center for International Environmental Law, and Nikki Reisch, Director of the Climate & Energy Program at the Center for International Environmental Law.
This is the fourth in a multi-part series analyzing the intersection of the climate emergency and the insurance crisis.
Hurricane Helene decimated much of the southeastern United States last week, causing widespread destruction and claiming the lives of more than 230 people across six states after it made landfall in Florida. North Carolina bore the brunt of the damage caused by the climate change-intensified storm.
As North Carolina homeowners face a future of rebuilding, they are also staring down the barrel of an insurance crisis. Hurricane Helene exposed not only the vulnerability of communities to extreme weather but also the flaws in the US insurance system.
The Deluge: Another Climate-Driven Disaster
Catastrophic flooding devastated western parts of North Carolina, destroying vital infrastructure and leaving tens of thousands of residents without power or running water more than a week after the storm.
This deluge is indisputably a result of climate change: global warming enables hurricanes to hold more water vapor, producing more intense rainfall. Hurricane Helene dumped some 20 trillion gallons of water on Georgia, Tennessee, the Carolinas, and Florida — 50 percent more rainfall than it would have without climate change, according to experts.
Hurricane Helene has demonstrated that no part of the United States is safe from the climate crisis. Asheville, North Carolina, was once seen as a climate haven — safe from the increasingly frequent and severe extreme weather events caused by global warming. Now, the bucolic town is inundated with murky brown floodwater, and its water supply system, which serves more than 150,000 people, is badly damaged.
As the floodwaters begin to recede, the staggering costs of rebuilding homes and communities are starting to come into focus. Homeowners in North Carolina may face even more financial pain if the state allows property insurance companies to raise their rates once again.
US Insurance System Failing Homeowners Amid the Climate Crisis
As if the destruction from Helene wasn’t enough, homeowners in North Carolina face the looming threat of skyrocketing insurance premiums. On October 7, a little more than a week after the storm, the state’s Insurance Commissioner, Mike Causey, began hearing arguments and evidence into a proposed 42 percent rate hike for homeowners insurance, with coastal areas facing increases of up to 99 percent if the increases requested by the North Carolina Rate Bureau (NCRB) are approved.
Insurers are claiming that rising costs mandate the massive premium increase. But in North Carolina, insurance has been profitable every year for the past decade, except for 2018. The current Insurance Commissioner has raised property insurance rates 16 times over the last eight years.
Many North Carolina homeowners and renters simply cannot afford the exorbitant premium payments. However, even those who do purchase property insurance may have no recourse to private insurance payments if disaster strikes.
Despite believing they had comprehensive insurance coverage — with policies marketed under names like “all peril” — many North Carolina homeowners and renters hit by Hurricane Helene will not receive an insurance payout. Catastrophe risk modeling firm Karen Clark & Company (KCC) confirmed that insured losses from Helene will be lower than anticipated because most damaged properties are not insured for flood. Only 1 in 200 homes in Western North Carolina, the area hardest hit by Hurricane Helene, have flood insurance, according to a Reuters analysis of federal flood insurance data and census data compiled by the University of Minnesota. The average homeowners insurance policy covers damage from wind but not flooding.
Increasingly, whether those facing losses from climate-driven storms will see a penny from insurers depends not on whether their homes are damaged but how. The damage caused by Hurricane Ian, with its record-high wind speeds, generated $63 billion in private insurance claims. In contrast, 2018’s Hurricane Florence primarily caused water — not wind — damage, leaving uninsured flood losses estimated at nearly $20 billion and letting private insurers largely escape liability.
Flood risk is typically left to the National Flood Insurance Program (NFIP). But despite climate change resulting in heavier and more intense rainfall inland, Federal Emergency Management Agency (FEMA) flood risk maps are limited to coastal or riverside areas and do not include rain-induced flooding like that caused by Hurricane Helene.
The Insurance Industry’s Hypocrisy
North Carolina’s proposed rate hikes highlight a broader issue: The insurance industry’s role in exacerbating the climate crisis and profiting from the industry driving it while shifting the burden of climate consequences onto policyholders. Insurance companies claim that they must raise premiums to cope with the escalating costs of extreme weather events, threatening to exit the home insurance market in areas vulnerable to climate hazards, as many have already done in California, Florida, and Louisiana.
Yet while insurers work to limit their own risks related to climate-induced weather events by raising premiums, reducing coverage, or pulling out of vulnerable areas, they continue to facilitate the worsening climate crisis — and profit from the industries driving it — by investing in and underwriting fossil fuels.
Fossil fuels are the overwhelming source of the greenhouse gases (GHGs) driving climate change. The production and combustion of fossil fuels have increased the concentration of GHGs in the atmosphere to its highest level in at least 800,000 years. These GHGs have caused global warming, increasing the average global temperature in 2023 to 1.45 °C (± 0.12°C) above the preindustrial average, and 2023 was the hottest year on record.
Nevertheless, US insurance companies have investments of more than $500 billion in fossil fuel-related assets, including coal, oil, and gas. Globally, insurers received some $21 billion from premiums for underwriting fossil fuel projects in 2022, enabling those projects to move forward.
Time for Accountability
In assessing the NCRB’s request for a rate hike, Commissioner Causey should evaluate the insurance sector’s contribution to the climate crisis. No rate increase should be granted to insurance companies actively increasing the risks their policyholders face by continuing to invest in and underwrite the fossil fuel activities driving climate change. At a minimum, any concessions to the insurance sector should be contingent on insurers reducing their investments in and coverage of the fossil fuel industry.
Hurricane Helene is a stark reminder of the climate emergency’s staggering toll. Homeowners should not be forced to bear the brunt of both the physical destruction and the financial fallout from climate change. Insurers must stop profiting from the climate crisis they help fuel and start contributing to the solutions needed to mitigate future disasters.
The best protection against future climate-driven disasters is not comprehensive insurance policies, it’s ambitious climate action that rapidly and equitably phases out fossil fuels and supports community resilience to adapt to the changing climate.