Insurance Industry Impacts: Rising Premiums, Coverage Cutbacks, and Possible Bankruptcy
While the oil, coal and automobile industries contend that they speak for all industry when they question the need to curb
global climate change, the insurance industry has begun to speak out about the costs of not acting.
Natural disasters carry with them enormous economic costs, and the insurance industry may be the first sector to feel the brunt
of the impacts. A recent study by the World Conference on Natural Disaster Reduction shows that the number of deaths and
damage from severe floods, droughts, and tropical storms has been rising at an increasing rate over the past 20 years (See
Figure 3). This onslaught of disasters worldwide has raised awareness among many insurance and reinsurance officials that
increased calamities that may result from global warming would pose serious problems for the industry.
The response of the insurance industry to recent disasters illustrates how insurance companies may react if global warming
results in an increase in catastrophic events. For example, the barrage of storms in the Caribbean and the Pacific over the past
decade led to an increase in insurance premiums and a decrease in coverage, with some insurance and reinsurance companies
temporarily withdrawing coverage in these areas altogether (Pearce, et al., 1995; Berz and Conrad, 1993; Dlugolecki, et al.,
1994, 1995; Leggett, 1993).
"Given only a slight increase in the scope for windstorms, drought-related wildfires, and floods, the $1.4 trillion insurance
industry would be in danger of global collapse," according to Greenpeace (Leggett, 1990, p. 17). This collapse would, in turn,
cause numerous ripple effects in the economy as insurance companies raised rates to unaffordable levels or dropped coverage
to some sectors completely.
These losses will not fall solely on private insurance companies. In situations where insurance is necessary but insurance
companies are unwilling to take the risk, the federal government — and the taxpaying public — becomes the underwriter, such
as under the federal flood insurance program (Smithsonian Institution, 1994, p. 205).
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