The Daily Planet #31: Insurance in a warming world

Phenomenal World is a good source of planetary analysis. Also, this is not the first Daily Planet featuring Sahay and Mackenzie and won't be the last either.

Planetary Risk implies Planetary Insurance, but how are we going to price that insurance? "Insurance in the Polycrisis" by Kate Mackenzie and Tim Sahay explores the profound challenges climate change poses to the insurance industry and, by extension, the broader economy. As extreme weather events like floods, wildfires, and storms increase in frequency and severity, entire regions become uninsurable, threatening the value of homes and assets. This creates a dangerous feedback loop: rising risks lead insurers to raise premiums or withdraw coverage, making properties unfinanceable and destabilizing housing markets, which in turn impacts the wider economy.

Insurers respond by adjusting premiums, limiting coverage, or refusing insurance in high-risk areas, shifting the burden onto homeowners. However, attempts to use insurance pricing as a "risk signal" to encourage climate resilience often fall short, as political and social pressures lead governments to intervene with subsidies or backstops, sometimes perpetuating risky development. Innovations like catastrophe bonds and parametric insurance offer new financial tools to spread risk, but they carry their own uncertainties and limitations.

The article highlights that the insurance crisis is not just financial but deeply political and social, raising questions about fairness, protection, and who bears the costs of climate change. The evolving insurance landscape reflects broader struggles to adapt to a warming world, where some communities face increasing vulnerability while others leverage public support to safeguard their assets.

Insurance in the Polycrisis | Kate Mackenzie & Tim Sahay

The future is triage on an uninsurable earth.