In the wake of skyrocketing insurance claims due to natural disasters—hurricanes, wildfires, droughts, blizzards and the like—insurers have been imposing steep rate hikes and, in some cases, fleeing high-risk areas, leaving consumers out in the cold. It's gotten so out of hand, consumer advocates say, that insurers now are even crying climate change as a factor in raising premiums or dumping clients.

As the crisis mounts, hard hit states such as Florida and Louisiana are increasingly stepping up as insurance companies check out, providing coverage for residents dropped by their insurers. And signs are things will get worse before they get better: The National Oceanic and Atmospheric Administration (NOAA) is predicting that this year's hurricane season—which officially began June 1—will be "very active," with three to five major hurricanes in the Atlantic.

Weather-related insurance losses rose to $50 billion in 2005 from less than $10 billion a decade earlier, according to a study by Ceres, a Boston-based nonprofit group that lobbies corporations to be environmentally responsible. The bulk of these losses can be attributed to sprawl in regions prone to catastrophe—the total area of coastal development in Florida has increased over 30 percent since 1990.

A Warmer Earth, and Fewer Insured

Private insurers also point fingers at a changing climate, citing a report issued by the Intergovernmental Panel on Climate Change (IPCC) earlier this year that concluded global warming is to blame for a doubling over the past five years of natural disasters—and that the situation will worsen if nothing is done to stop it. (The often-touted link between climate change and increased hurricane strength, however, has yet to be firmly established.)

"If circumstances change due to global warming that alter the level of risk, insurance companies need to be free to reflect that risk," says David Snyder, vice president and assistant general counsel for the American Insurance Association (AIA). "The reality is that in some places the risk is so severe that [these locations] are uninsurable."

Over the past year alone, insurance companies have dramatically raised homeowners' annual premiums in parts of Texas, Louisiana, the Carolinas, Massachusetts and New York State. In the Florida Keys, for instance, windstorm insurance rates for a 1,900-square-foot home in Monroe County soared from $3,000 in 2004 to nearly $16,000 in 2007. In South Carolina private companies have stopped insuring homes valued at less than $500,000. In Rhode Island some agencies have refused to cover any coastal properties. Allstate, one of the largest residential property insurers on the east coast, elected not to renew 30,000 policies covering coastal properties in New York City, Long Island, Westchester County and Connecticut, and is considering reducing coastal area coverage in Massachusetts and along the Gulf.

Predictable Risk or Idle Speculation?

Consumers are up in arms about these trends. "I think [insurance companies] are speculating on the fear of global warming and using it as an opportunity to raise rates," says Bill Newton, executive director of the Florida Consumer Action Network.

In the past, when private industry backed away from ventures it deemed too risky, the state and federal government often picked up the slack. The best examples are flood and crop insurance, which are now largely federally funded.

"There's a continuum between public and private risk sharing, formally and informally. They play off one another and it's like a tug of rope almost," says Evan Mills, an environmental and energy systems scientist at Lawrence Berkeley National Laboratory in California.

The Federal Government began the National Flood Insurance Program (NFIP) in 1968 to counter the chronically high premiums for water damage and to cover consumers who either could not afford or were turned down for flood coverage by private companies. Since its inception, NFIP, which has typically run at a loss, has become the country's primary provider of flood insurance. For instance, in 2005 and 2006 NFIP requested and was granted a $24 billion in loans from the U.S. treasury to reimburse Gulf Coast customers for losses caused by Hurricane Katrina. Mills says that it is unlikely NFIP will ever be able to pay back the loan, given that it pulls in an average of only about $2 billion a year in premiums from consumers.

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