That’s way too extreme and clearly wrong in the short term. The market may see some rate increases, but there is no crisis of uninsurability. The CAT bond cited in the article is a sign of increased capacity, even if that particular bond took a big hit. The influx of financial market capital in the form of CAT bonds and other ILS (Insurance Linked Securities) has acted to diminish the ability of reinsurers to raise rates as much as they used to after a bad CAT year. After last year’s string of storms, the industry hoped for large price increases, but the actual increases were much more modest. The alternative capital kept the market well-supplied with capacity.

A key point is that much of the pricing in peak zones is model-based and none of the big modeling firms have adjusted their long-term frequency and storm/EQ severity parameters upward to any sizable degree.

From year to year, forecasts of frequency have even declined.

Much of the increase in the loss of life and property value due to catastrophic storms is due more to increased exposure than to any large uptick in storm frequency or wind speed. People are building more on hurricane-alley coastal zones and exposing more property and people to risk. Though wildfires have gotten dramatically worse, to some degree due to forestry mismanagement, the loss of life and residential homes arises because people have chosen to locate themselves in areas that historically have had fires every decade or so.

Flood is a major cause of catastrophic loss and it has traditionally regarded as an uninsurable risk by the private market. However since the 1960s the US government has provided flood insurance under the NFIP (National Flood Insurance Program). The NFIP was supposed to be self-sustaining but that has not turned out to be the case. Attempts at reforms have been made. These include charging actuarially sound rates, weaning away premium subsidies, buying out properties with repeated losses, and moving to update flood zone maps. What is interesting is that despite NFIP losses, the private market has made some forays into providing commercial customers with flood insurance. The NFIP itself now has some reinsurance protection. Even the conventionally uninsurable risk is partly insurable.

Prices for insurance in the most exposed flood and hurricane and wildfire zones may rise and force people to stop building there. That is not a crisis of uninsurability. It is the signal a functioning insurance market should provide.

Mathematician, Statistician, Businessman, and Academic. Student of history, poli sci , and the Bible.

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