How climate disasters are shaping insurance markets

Premiums are rising. Insurers are leaving markets. But people keep building in risk-prone areas, and the climate disasters just keep coming.

Can insurance markets adapt?

In this episode, Shayle talks to Dr. Judd Boomhower, an assistant professor of economics at the University of California-San Diego and a faculty research fellow at the National Bureau of Economic Research. He studies how insurance markets are reacting to climate change. Shayle and Judd cover topics like:

• Why insurers are limiting coverage in California, Florida, and other high-risk markets
• How disaster insurance, unlike auto or health insurance, faces a flood of claims all at the same time
• How catastrophe models (or “cat models” for short) work and why AI and other improvements struggle the solve the fundamental problem: a lack of historical data needed to predict future events
• The challenges of private “black-box” catastrophe models that can’t be reviewed by third parties
• Reinsurance markets and why they’re not attracting more capital to shore up insurers
• The pros and cons of parametric insurance, an emerging category of insurance products
• Undercapitalized “fly-by-night” insurers that risk insolvency and failing to pay out claim

Recommended resources

NBER: How Are Insurance Markets Adapting to Climate Change? Risk Classification and Pricing in the Market for Homeowners Insurance

Brookings: “How is climate change impacting home insurance markets?”

Credits: Hosted by Shayle Kann. Produced and edited by Daniel Woldorff. Original music and engineering by Sean Marquand. Stephen Lacey is executive editor.

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