Inflation in insured loss can’t be compared to general rates of inflation. In addition to the reasons you cite costs post-event are significantly affected by localized demand surge (cost of plywood, etc.), labor and material availability. There is also a significant influence in the post 2017 period arising from the increased involvement of public adjusters by claimants and litigation. This leads to larger claims ( i.e, replacing entire roofs rather than the damaged portion, etc.) and also some fraud. Some states have attempted to control this “social inflation”, but the increase in loss adjustment expense is a meaningful driver of overall loss cost inflation.
According to the Shiller Home Price Index, home prices have increased about 50% since 2019 (~210 -> ~320; 110/210 ~ 52%). Some of the increase is from increased land value, but most of it should be from the actual building/structure.
Interesting. For "Consumer Price Index for All Urban Consumers: Tenants' and Household Insurance in U.S. City Average" I get only 5% increase from Dec 2018 through Dec 2024 from the Fed's graph. It looks like that entire increase occurs in 2023-2024. Wonder how they calculated that index.
On #3: "...This increase reflects both rising rebuild costs, as insurers respond to higher construction material and labor expenses..." They don't say what the pace of rebuilding costs is, but then talk about inflation not accounting for all the annual 6.1% increase in insurance. But if rebuilding costs increased faster than general inflation, that could account for most or all of the increased cost of insurance.
By coincidence, I read an article about insurance here in New Zealand where the claim is made that climate risks are getting more frequent and extreme. One source is a report done for the Helen Clark foundation (former left wing NZ prime minister and UN wannabe, Helen Clark), which I would not consider reliable, and another comes from Deloittes, for the insurance industry, who have a financial interest in making such claims. That comment was similarly not sourced either in the Deloitte's report or the underlying report iy references “2025 global insurance outlook: Evolving industry operating models to build the future of insurance.”
Neither NZ based climate scientists nor the IPCC (who are informed by the same NZ based scientists) agree with this conclusion. In the influential sixth assessment report (for which I was an expert reviewer), the IPCC addressed changes to heavy precipitation in New Zealand saying there is low confidence due to a lack of agreement on the evidence of trends. They go on to note: “ In New Zealand between 1960 and 2019 in both summer and winter, rainfall increased in some stations in the South Island and decreased at many stations in the North Island, however most station trends are not statistically significant” and they reference data from MfE and Stats NZ, 2020 . See https://www.ipcc.ch/report/ar6/wg1/chapter/atlas/ section 6.2.
Stats NZ’s most recent update on various climate indicators shows a mixed bag but no clear trend across the country. Windiness was up and down depending on which location. Maximum rainfall in a single day decreased at 10 sites and increased at 9 with no change at the remaining 11. Very high and extreme fire danger days likely increased at 12 and decreased at 8, of 28 sites across New Zealand, with no trend at 8. Warm days likely increased at 24, and frost days decreased at 18 of 30 sites across New Zealand. See Atmosphere and climate | Stats NZ.
We are battling City Councils, and indirectly, insurers, who use the Gov't sanctioned high-end scenarios to construct concerning sea level rise models, that have the effect of devaluing properties and justifying the rise in insurance premiums and a 'managed retreat' policy 'solution'. But those high end models are now considered implausible and only for academic use but it keeps certain Gov't organisations, coastal engineering firms and insurance companies fed and watered.
Most of New Zealand is subject to accretion trends, which provide a natural barrier from coastal inundation.
Misunderstandings of the Representative Concentration Pathways (RCP) are rife in industry, as the individuals tasked with writing these reports, are not climate scientists and often do not understand if and how these models should be used in context and with nuance. All models are wrong, some are useful.
My BS-to English translation: Climate change is NOT a factor; the amount of property exposed to normally occurring risks (hurricanes and fires) IS the reason for increasing loss amounts. If we build more, and more expensive properties on coastal areas, hurricanes will result in greater loss amounts. Likewise, building in forested areas subject to fires. Risk management, not higher pricing, is the key to controlling loss amounts.
The Great Hurricane of 1780 had the largest death toll of any Atlantic hurricane. It claimed 22,000+ lives. Wind speeds have been estimated at 200 mph. The 1780 Hurricane season was so severe it may have contributed to the American victory at Yorktown the following year by diminishing British Navy forces in the Atlantic.
Odd from start to finish. I thought (still do until persuaded otherwise) that the problem was that premiums have not been set high enough (mainly because of regulation) to account for the risks that properties in certain states and localities face. Whatever effects the accumulation of CO2 in the atmosphere has had on risks up until now does not seem important. The issue is to get premia set on the basis of forward-looking models of weather patterns.
The premise that the narrative around insurance and climate change is a viewed as tool for climate advocacy is clear, with the attendant logical errors (“party tricks”) involved.
That said, in risk analysis, both the likelihood of an event occurring and the consequences of those events are considered. If one were to accept that climate change contributes to more frequent “extreme weather” events, common sense would say that the systemic frequency of side of the equation HAS changed as a result of climate change. Where the mainstream narrative focuses is on climate change impacting the attendant consequences of those events which is, to your point, not fundamentally borne out in the data (given other systemic factors, like inflation and greater concentration of housing).
I think "severe convective storms" means tornados, severe thunderstorms, hailstorms, flash flooding, lightening, and microbursts and downbursts. It excludes cyclones/hurricanes.
Inflation in insured loss can’t be compared to general rates of inflation. In addition to the reasons you cite costs post-event are significantly affected by localized demand surge (cost of plywood, etc.), labor and material availability. There is also a significant influence in the post 2017 period arising from the increased involvement of public adjusters by claimants and litigation. This leads to larger claims ( i.e, replacing entire roofs rather than the damaged portion, etc.) and also some fraud. Some states have attempted to control this “social inflation”, but the increase in loss adjustment expense is a meaningful driver of overall loss cost inflation.
Thanks for the clarification on inflation.
Good point on the litigation, I had forgotten about that issue.
According to the Shiller Home Price Index, home prices have increased about 50% since 2019 (~210 -> ~320; 110/210 ~ 52%). Some of the increase is from increased land value, but most of it should be from the actual building/structure.
https://fred.stlouisfed.org/series/CSUSHPISA
Looking at the CPI estimate of home insurance increases, the increase is < 10% (much less than the 31% figure in example 3).
https://fred.stlouisfed.org/series/CUUR0000SEHD
CPI also estimates home price inflation to be less than Shiller (~25% vs. Shiller's 50%):
https://fred.stlouisfed.org/series/CPIHOSNS
It would seem First Street's conclusions are predetermined, and the underlying statistics are rather dubious.
Interesting. For "Consumer Price Index for All Urban Consumers: Tenants' and Household Insurance in U.S. City Average" I get only 5% increase from Dec 2018 through Dec 2024 from the Fed's graph. It looks like that entire increase occurs in 2023-2024. Wonder how they calculated that index.
Nice typo in footnote 1:
Pubic debate …
Great piece + best subject line of all time.
On #3: "...This increase reflects both rising rebuild costs, as insurers respond to higher construction material and labor expenses..." They don't say what the pace of rebuilding costs is, but then talk about inflation not accounting for all the annual 6.1% increase in insurance. But if rebuilding costs increased faster than general inflation, that could account for most or all of the increased cost of insurance.
By coincidence, I read an article about insurance here in New Zealand where the claim is made that climate risks are getting more frequent and extreme. One source is a report done for the Helen Clark foundation (former left wing NZ prime minister and UN wannabe, Helen Clark), which I would not consider reliable, and another comes from Deloittes, for the insurance industry, who have a financial interest in making such claims. That comment was similarly not sourced either in the Deloitte's report or the underlying report iy references “2025 global insurance outlook: Evolving industry operating models to build the future of insurance.”
Neither NZ based climate scientists nor the IPCC (who are informed by the same NZ based scientists) agree with this conclusion. In the influential sixth assessment report (for which I was an expert reviewer), the IPCC addressed changes to heavy precipitation in New Zealand saying there is low confidence due to a lack of agreement on the evidence of trends. They go on to note: “ In New Zealand between 1960 and 2019 in both summer and winter, rainfall increased in some stations in the South Island and decreased at many stations in the North Island, however most station trends are not statistically significant” and they reference data from MfE and Stats NZ, 2020 . See https://www.ipcc.ch/report/ar6/wg1/chapter/atlas/ section 6.2.
Stats NZ’s most recent update on various climate indicators shows a mixed bag but no clear trend across the country. Windiness was up and down depending on which location. Maximum rainfall in a single day decreased at 10 sites and increased at 9 with no change at the remaining 11. Very high and extreme fire danger days likely increased at 12 and decreased at 8, of 28 sites across New Zealand, with no trend at 8. Warm days likely increased at 24, and frost days decreased at 18 of 30 sites across New Zealand. See Atmosphere and climate | Stats NZ.
We are battling City Councils, and indirectly, insurers, who use the Gov't sanctioned high-end scenarios to construct concerning sea level rise models, that have the effect of devaluing properties and justifying the rise in insurance premiums and a 'managed retreat' policy 'solution'. But those high end models are now considered implausible and only for academic use but it keeps certain Gov't organisations, coastal engineering firms and insurance companies fed and watered.
Most of New Zealand is subject to accretion trends, which provide a natural barrier from coastal inundation.
Misunderstandings of the Representative Concentration Pathways (RCP) are rife in industry, as the individuals tasked with writing these reports, are not climate scientists and often do not understand if and how these models should be used in context and with nuance. All models are wrong, some are useful.
My BS-to English translation: Climate change is NOT a factor; the amount of property exposed to normally occurring risks (hurricanes and fires) IS the reason for increasing loss amounts. If we build more, and more expensive properties on coastal areas, hurricanes will result in greater loss amounts. Likewise, building in forested areas subject to fires. Risk management, not higher pricing, is the key to controlling loss amounts.
IT HAPPENED DURING THE LITTLE ICE AGE.
The Great Hurricane of 1780 had the largest death toll of any Atlantic hurricane. It claimed 22,000+ lives. Wind speeds have been estimated at 200 mph. The 1780 Hurricane season was so severe it may have contributed to the American victory at Yorktown the following year by diminishing British Navy forces in the Atlantic.
Jessica, good article. Can I translate part of this article into Spanish with links to you and a description of your newsletter?
sure :)
Many thanks, Jessica.
I see your restack, thanks again.
The article is here:
https://ecologia.substack.com/p/aguanta-mi-cerveza
Steyr has pocketed a whole lot of finance bro dough for his chicken little routine.
Let me sum this up. Carbon dioxide is the basis of life on earth, not a pollutant and not the controller of the climate of the planet.
People and institutions all around the world are monetising the lie, the falsehood, that it is.
How do the little people stop this latest abomination?
Odd from start to finish. I thought (still do until persuaded otherwise) that the problem was that premiums have not been set high enough (mainly because of regulation) to account for the risks that properties in certain states and localities face. Whatever effects the accumulation of CO2 in the atmosphere has had on risks up until now does not seem important. The issue is to get premia set on the basis of forward-looking models of weather patterns.
The premise that the narrative around insurance and climate change is a viewed as tool for climate advocacy is clear, with the attendant logical errors (“party tricks”) involved.
That said, in risk analysis, both the likelihood of an event occurring and the consequences of those events are considered. If one were to accept that climate change contributes to more frequent “extreme weather” events, common sense would say that the systemic frequency of side of the equation HAS changed as a result of climate change. Where the mainstream narrative focuses is on climate change impacting the attendant consequences of those events which is, to your point, not fundamentally borne out in the data (given other systemic factors, like inflation and greater concentration of housing).
Most of the losses in 2023 are from "severe convective storms". Is that where US landfalling hurricanes is?
And what then are "tropical cyclones"? Losses in Asia?
I think "severe convective storms" means tornados, severe thunderstorms, hailstorms, flash flooding, lightening, and microbursts and downbursts. It excludes cyclones/hurricanes.
That’s right - hailstorms in particular have been devastatingly expensive in some regions, given the cost of materials.
Tropical cyclones are another name for hurricanes. Used in Australia/New Zealand