InsureMe's Insurance Blog: Will Homeowners Feel the Heat of Global Warming?

Insurers are studying the impact of global warming on insurance rates, and homeowners could start to feel the heat. general risk model

The Boston Globe reported this week that a small but influential segment of the insurance industry is studying whether climate change is partly to blame for more intense hurricanes in the North Atlantic, which caused an estimated $90 billion in losses in 2004 and 2005. The findings could elevate home insurance rates for those along coastal regions from Maine to Texas.

Risk Management Solutions (RMS), a leader in quantifying and measuring catastrophic risks (whose models are used by over 400 insurers and financial institutions worldwide) has already adjusted the computer model it uses to simulate and anticipate future weather trends. According to the Boston Globe, RMS released this new model in May, estimating that annual insurance losses will increase by as much as 30 percent along the coastal Northeast due to elevated hurricane activity.

The debate over whether global warming is contributing to coastal storm activity is indeed fierce. Last year, MIT scientist Kerry Emanuel published a white paper about the increase of hurricanes along the coastal Northeast, saying that "human-caused global warming" was probably the cause.

And while some scientists agree that global warming has contributed to hurricane activity in the U.S., other scientists argue that we could be experiencing a natural hurricane cycle which could end within the next 25 years. It's because of the scientific impasse that top risk modelers, as well as state officials, are researching whether they should add climate change to their insurance risk models.

"It behooves us to research this in a scientific way," said Karen Clark, president and CEO of Boston risk modeler, AIR Worldwide Corporation. "We want to quantify the effect of global warming on hurricane activity."

RMS, who developed their new risk model after convening with a panel of four specialists (including Kerry Emanuel of MIT), has already upset two consumer groups. The consumer advocates argue that RMS altered its risk model to tip the scales towards insurance companies.

I'm not entirely sure that I support that claim. I agree that significant research needs to be done to determine the effects of global warming on Mother Nature, who seems to be quite ticked off as of late. And while I feel for the homeowners on the coast (and their pockets), I have a hard time believing that any of them actually expected rates to decrease from here on out. My two cents.

Check out the Globe article here; I've regurgitated some of the facts here, but it really is worth a read.

I'll be sure to keep an eye out for updates and post them as they come.