Adjusting climate-change disasters
As the intensity of disasters increase, policyholders should be aware that not all catastrophes will be covered by insurance.
There are scores of disasters created by increased global warming; most, but not all, are insurable in some manner, and adjusters will remain busy with the investigation, evaluation and resolution of coverage, liability and damages.
Covered risks
The Intergovernmental Panel on Climate Change (IPCC) warns that the disasters scientists previously predicted are already occurring, and “taken as a whole, the range of published evidence indicates that the net damage costs of climate change are likely to be significant and increase over time.” Further, such change “is projected to continue over this century and beyond…”
Several resulting types of catastrophes can be insured: Windstorms, ranging from hurricanes to tornadoes (including damaging blizzards and sandstorms), are generally a covered peril in most commercial and personal property insurance forms. The IPCC predicts “hurricanes will become stronger and more intense,” increasing the amount of damages caused.
General conditions of flooding from heavy rain, swollen rivers or waves, while excluded from property forms, can be insured under the National Flood Insurance Program (NFIP), and occasionally by private insurance companies; inland marine forms may also apply to flood. The NFIP program also includes “mudflows” but not landslides, and sub-surface areas are excluded.
Structural damage triggered by forest fires can be insured under property policies as well as various inland marine or auto physical damage forms. Crop insurance can be purchased on some crops that could be damaged by perils such as fire, flood or drought.
Uninsurable risks
Temperature rise creates a number of perils that are generally uninsurable. Increasing temperatures (heat waves) can cause damages besides drought, and they can also kill, causing death to the elderly, infants and infirm. This may affect the life and health insurance industries and increase migration from geographic areas where crops withered in the heat. The IPCC notes that a “frost-free growing season will lengthen,” offsetting some crop damage. Aquifer drainage is also occurring.
Although some property may have federal or private flood insurance, coastal areas will continue to be swamped by ocean rise. The IPCC predicts, “Sea level will rise one to four feet by 2100. That is only 80 years away, and little can be done to stop it as glaciers and ice caps melt.”
The National Climate Assessment Report from the U.S. Global Change Research Program predicts the following U.S. regional changes: For the Northeast, heat waves, heavy downpours and sea level rise. For the Northwest, changes in the timing of streamflow [reducing] water supplies for competing demands, plus sea level rise, erosion and inundation. The Southeast will experience “sea level rise [posing] widespread and continuing threats to the region’s economy and environment.”
In the Midwest, there will be extreme heat, affecting health, energy and farming, including exacerbation of “a range of risks to the Great Lakes.” Maumee Bay and other areas are already experiencing “dead areas” from algae blooms. Finally, increased heat will bring drought and insect invasions, as well as wildfires and declining water resources to the Southwest. Earthquake damage may be insurable, but is not generally related to climate change.
Climate claim handling
Coverage analysis will be crucial for the remainder of the 21st century. Insurance underwriting will undoubtedly “stiffen” as damages become increasingly severe, and what constitutes a covered peril may increasingly be a litigated issue. Some claims may clearly be excluded under any policy form, while others, such as flood and wind damage in a hurricane, may fall under one or more policies, with the damages having to be sorted and allocated to the correct coverage. The fact that there is a policy does not guarantee that the policy applies to loss.
Ken Brownlee, CPCU, ARM, is co-author of “Catastrophe Claims: Insurance for Natural & Man-made Disasters” published by Thomson Reuters West. Opinions expressed are the author’s own.
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