Most U.S. insurance companies have not adapted their strategies to address the dangers of climate change, making them likely to raise rates or deny coverage in high-risk areas, said a study released Tuesday.
With predictions of an above-average Atlantic hurricane season approaching, thousands of people could be unable to afford insurance protection or lose it altogether, said the Canadian research study published in the British Journal of Management.
Scientific consensus holds that climate change increases the intensity and frequency of extreme weather, from hurricanes to flooding. Last year, three record hurricanes struck the Gulf of Mexico and the Caribbean, causing billions of dollars' worth of damage.
Yet insurance and reinsurance companies overwhelmingly continue to treat storms as "anomalous rather than correlated to climate change," the study said.
"Insurers that ignore climate change will not put away enough money to cover their claims. To recoup those losses, they'll have to raise rates or pull coverage from high-risk areas," said lead author Jason Thistlethwaite, an assistant professor of environment and business at the University of Waterloo.
They will face whopping payouts associated with disasters, he said.
So long, coverage
"When this shift happens, thousands of people will lose coverage or it will be unaffordable," he said.
Insured losses hit an all-time high between 2004 and 2014, according to a 2015 analysis by reinsurer Swiss Re.
Insurance companies use reinsurance to minimize their risk.
But in 2015, only 3 percent out of a sample of 178 U.S. property insurers and reinsurers were taking into account climate change in corporate governance, underwriting and investment, the study found.
However, the number of companies factoring in climate change in at least one area of operation doubled to about three dozen from 2012 to 2015, it said.
With storm-related payouts soaring, insurance companies may go out of business or lose investors, Thistlethwaite said.
A shrinking insurance market will drive up costs to consumers, he said.
The researchers analyzed insurers in California, Connecticut, Minnesota, New York, Washington and New Mexico.
Less than a month away, the Atlantic hurricane season has been predicted to be "above average" by Colorado State University meteorologists. The season runs from June 1 to November 30.