Insurers struggle to forecast near-term risks in a shifting climate

By Stephanie Pappas

[...]

The 2020 wildfire and hurricane seasons broke records, with wildfires burning more than 10 million acres in the U.S. and 30 named storms roaring through the Atlantic Ocean. From the standpoint of the insurance industry, however, they could have been worse. Most of the year’s storms struck sparsely populated areas, and the overall cost of the insured losses from natural catastrophes in the country rang up a relatively modest $81 billion.

[...]

With a changing climate and not-so-perfect understanding of the trends, pricing insurance products to accurately reflect risk might be challenging. Insurance cost will change, and that will be tied to where you live. In California, where we have seen recent wildfires, there is already an impact, with the insurance premium going up.

[...]

As perils, wildfires are extremely difficult to model. There are thousands of ignitions in a state like California alone. Most of them are suppressed, but some of them become much larger fires. You try to defend where people live; you take more action. Modeling this from an insurance context is extremely difficult.

[...]